Which Is The Better Long-Term Buy?


Shares of Amazon AMZN and Google parent Alphabet Inc. GOOGL have slipped since both tech behemoths posted less than impressive top-line performances in Q3. Yet, Amazon and Alphabet remain two of the strongest companies in the world. So, let’s see which stock, AMZN or GOOGL, looks like a better long-term buy at the moment.

Amazon Q3 Overview

Amazon’s quarterly revenues climbed by 29% from $43.7 billion in the year-ago period to touch $56.6 billion. This, however, fell short of the Zacks Consensus Estimate that called for revenues of $57.06 billion.

The top line miss has left some investors to wonder if Amazon’s days of massive revenues growth are over. This could be the case as it is harder to post 40% growth when you pull in over $50 billion a quarter. With that said, Amazon posted adjusted quarterly earnings of $5.75 per share. This destroyed our $3.29 per share estimate and marked over 1,000% growth from the year-ago period’s $0.52 per share.

 

Google Q3 Overview

Google saw its overall quarterly revenues jump 21% from $27.77 billion to hit $33.74 billion. More specifically, the firm’s top line not including Google Network Members revenues, climbed by a similar percentage to $27.16 billion. But this fell short of our estimate by more than $150 million.

Meanwhile, Alphabet’s adjusted quarterly earnings climbed from $9.57 per share to $13.06 per share, which crushed our $10.54 estimate.

Key Business Units

Amazon’s AWS cloud computing business saw its revenues climb 46% from $4.584 billion in the year-ago period to reach $6.679 billion. This growth fell in line with Q2’s 49% jump and Q1’s 48% and topped the final three quarters of 2017. AWS, which has long been a cash cow for Amazon, is likely to continue to shine even as rivals Microsoft MSFT, IBM IBM, and Google expand their cloud reach.

Meanwhile, Amazon’s Prime-heavy subscription business soared 52% to hit $3.698 billion. This unit creates brand loyalty through delivery offerings and also helps Prime Video compete against Netflix NFLX, and soon enough Disney DIS, Apple AAPL, and AT&T T.

Amazon’s online sales grew only 10% from the year-ago period to reach $29.06 billion, which marked a drop from Q2’s 12%. But this figure will likely continue to decline for reasons we touched on earlier.

Moving on, Alphabet currently competes against Apple with its Pixel smartphones. The firm’s products unit also includes the new Home Hub. “Google other revenues,” which is made up of the Google Play Store, Google’s Cloud offerings, and its hardware business, saw its revenues jump by $1.05 billion, or over 29% to touch $4.64 billion.

Google’s “other bets” unit surged roughly 25% to $146 million. This business features Fiber, Verily, and its self-driving car segment Waymo. It is also worth noting that Google’s core ad business surged just over 20% to reach $28.95 billion.

Stock Price Movement & Valuation

Coming into Monday, shares of GOOGL were down roughly 3% since the start of the year, which includes a roughly 16% decline over the past three months. AMZN stock has fallen by almost the exact same amount during this same time period. Yet, Amazon shares are still up approximately 29% in 2018.

Both AMZN and GOOGL saw their stock prices tank during regular trading once against Monday as investors continue to move out of tech stocks amid a brutal October. With that said, both companies are sitting at discounts compared to where they have traded in the recent past.

 

On top of that, GOOGL is currently trading right near its 12-month low of 22.8X forward 12-month Zacks Consensus EPS estimates, which also marks a discount to its one-year high of 33.8X.

Meanwhile, AMZN’s recent pullback mixed with its earnings growth and outlook has its stock trading at its 12-month low and a somewhat reasonable forward P/E of 65.1X. Amazon has traded as high as 282.7X during the last year, with a one-year median of 135.5X.

Outlook

Looking ahead, Amazon is expected to see its Q4 revenues climb roughly 22%, based on our current Zacks Consensus Estimate. Plus, its full-year revenues are projected to jump 32%, while its fiscal 2018 earnings are expected to soar 292%. 

Alphabet is expected to see its fiscal 2018 revenues jump 23% to reach $109.80 billion. The search engine giant’s adjusted fiscal year earnings are projected to climb by roughly 25%.

Bottom Line

Both companies will remain giants for years to come, with Google set to control a large chunk of online advertising along with Facebook FB. But Google looks as though it could face increased government scrutiny.

At the same time, Amazon’s advertising business is set to slowly grab more market share as more consumers begin their product searches on Amazon instead of Google. Plus, Amazon’s enterprise level retail business continues to grow, as does its pharmaceutical unit and its brick-and-mortar business.

Both firms are currently Zacks Rank #3 (Hold) stocks that could continue to slide amid a larger market downturn. And neither company pays a dividend at the moment either. Therefore, it seems like the better long-term buy might be Amazon since it has more room to grow its bottom line as it enters new industries.

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