In this article, I have evaluated leading tech stocks Amazon.com, Inc. (AMZN) and Meta Platforms, Inc. (META) to determine a better investment choice. Based on the fundamental comparison of these stocks, I believe META is the better buy for the reasons explained throughout this article.
The US economy gained momentum in the second quarter, as reported by the Commerce Department. However, consumer spending, which accounts for about two-thirds of economic output, grew at just a 1.6% rate in the second quarter, down sharply from a 4.2% rate in the first quarter of this year.
Now coming to the internet industry, expanding telecommunication networks and infrastructure has led to increased global internet access. In April 2023, there were approximately 5.18 billion internet users worldwide.
In addition, 5G adoption has surged in the US, with expectations of nearly a billion new connections yearly. 5G technology stands as a major milestone in the telecom industry, set to revolutionize various sectors. Its adoption plays a pivotal role in advancing intelligent manufacturing and smart factories, providing substantial benefits to manufacturers.
Thus, the global private 5G market is expected to grow at a CAGR of 49.7% to reach $41.80 billion by 2030.
META is a clear winner in terms of price performance, as it has gained 62.2% over the past year compared to AMZN’s 6.4% decline. META’s 135.4% gain year-to-date is higher than AMZN’s 58.6% gain. Moreover, AMZN’s 41.5% gain over the past nine months is lower than META’s 152.8% gain.
Here are the reasons why META could be a better buy now:
Latest Developments
On August 1, AMZN’s AWS announced the launch of the AWS Israel (Tel Aviv) Region. With this launch, developers, entrepreneurs, enterprises, government, and nonprofit organizations, would have an even greater choice for running their applications and serving end users from data centers located in Israel, using advanced AWS technologies to drive innovation.
Conversely, on August 2, 2023, META launched AudioCraft, an AI model suite that generates music and audio based on text prompts. The suite consists of three models: MusicGen for music generation, AudioGen for sound effects, and EnCodec for higher-quality music production.
Moreover, on July 27, META and India AI’ entered into a collaboration aimed at advancing research and development in AI & Emerging Technologies, seeking breakthroughs in AI technology and its applications.
Leveraging META’s AI research models like LlaMA, Massively Multilingual Speech, and No Language Left Behind, the collaboration will focus on building datasets in Indian Languages to enable translation and large language models, prioritizing low-resource languages.
Recent Financial Results
AMZN’s net sales increased 10.9% year-over-year to $134.38 billion for the second quarter that ended June 30, 2023. Its operating income grew 131.6% year-over-year to $7.68 billion, while total operating expenses rose 7.5% year-over-year to $126.70 billion. In addition, the company’s net income was $6.75 billion and $0.65 per share.
On the other side, META’s revenues for the fiscal second quarter that ended June 30, 2023, increased 11% year-over-year to $32 billion, while its income from operations stood at $9.39 billion, up 12.4% year-over-year. The company’s net income and earnings per share came in at $7.79 billion and $2.98, up 16.5% and 21.1% from the prior-year quarter, respectively.
Past and Expected Financial Performance
While AMZN’s revenue grew at a CAGR of 18.7% over the past three years, its EPS declined marginally. However, its EPS is expected to rise 99.8% in the current quarter, 1,972% in the next quarter. Its revenue is expected to increase by 11.2% in the current quarter, 11.4% in the next quarter, and 10.8% in the current year.
In contrast, META’s revenue and EPS have grown at 17.1% and 1.5% CAGR over the past three years. Its EPS is expected to rise 116.4% in the current quarter, 172.5% in the next quarter, and 56.5% in the current year. Its revenue is expected to increase by 20.3% in the current quarter, 20.1% in the next quarter, and 13.6% in the current year.
Profitability
META has a trailing-12-month gross profit margin of 79.45%, which is higher than AMZN’s 45.53%. Also, META’s trailing-12-month levered FCF margin of 16.80% compares to AMZN’s 3.93%.
Moreover, META’s trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% are higher than AMZN’s 8.71%, 3.50%, and 2.70%.
Thus, META is more profitable.
Valuation
In terms of forward non-GAAP P/E, META is trading at 21.07x, significantly lower than AMZN, which is currently trading at 61.75x. META’s forward EV/EBIT multiple of 16.76 is lower than AMZN’s 52.26.
Hence, META is more affordable.
POWR Ratings
AMZN has an overall rating of C, translating to a Neutral in our POWR Ratings system. On the other hand, META has an overall rating of B, translating to a Buy. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. META’s Growth grade of B is in sync with its solid financial result in the recent quarter. However, AMZN’s C grade in Growth is consistent with its mixed financial result in the recent quarter.
Among the 59 stocks in the Internet industry, AMZN is ranked #14, while META is ranked #6.
Beyond what we’ve stated above, we have also rated both stocks for Sentiment, Momentum, Stability, Quality, and Value. To view AMZN’s ratings, click here. Get all ratings of META here.
The Winner
The surge in Internet usage has boosted Internet service firms, capitalizing on increased online activities such as shopping, payments, and remote work. The digital transformation has amplified demand, prompting these companies to broaden their services and aid businesses in improving their operations.
Given the favorable tech landscape, both AMZN and META look poised for long-term growth. However, considering AMZN's increasing expenses, lower profitability, and higher valuation, META presents a more appealing investment option in this economy.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
META shares were trading at $285.45 per share on Monday morning, up $2.20 (+0.78%). Year-to-date, META has gained 137.20%, versus a 14.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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