Better Buy: Amazon vs. Netflix

Weather Amazon (AMZN -2.18%) Y Netflix (NFLX 2.02%) Both have played a significant role in developing broadcasting into what it is today, their overall businesses vary considerably. Netflix earns its revenue almost exclusively from its streaming subscriptions, while Amazon has a diversified model that includes industries such as e-commerce, cloud services, digital advertising and more.

the Nasdaq Composite The index is down 26% so far this year, and neither Amazon nor Netflix has withstood the drop. Amazon shares have fallen 25% and Netflix shares 63% in the same period. Investors looking to add a streaming stock to their portfolio may be wondering which of the two companies will offer higher long-term returns, so let’s find out.

Netflix: A Blurred Future

Netflix shares took a deep dive in 2022 as the loss of 200,000 subscribers in the first quarter sent investors for the hills. The company has made positive progress since then, forecasting a loss of 2 million subscribers in the second quarter of 2022, but reporting a more moderate loss of one million. With the saturated streaming market filled with more competition than anyone can control, it’s hard to tell if Netflix will ever fully recover, especially with the growing threat of walt-disney (DIS -2.27%) on your heels.

In August, Disney announced that it had reached 221 million streaming subscribers across its three platforms, surpassing Netflix’s 220.7 million for the first time. Although Disney’s average revenue per user was significantly lower than Netflix’s in July, $6.27 per month in the US and Canada versus Netflix’s $15.95, the company’s significant price increases across all of its platforms They should close that gap.

Additionally, Netflix moved up the launch of its ad-supported tier from early 2023 to November 1, a month after Disney announced that its ad-supported membership for Disney+ would be available on December 8. Netflix seems intent on beating Disney. , as the streaming service could lose subscribers to the cheaper Disney+ service if it debuts first.

While Netflix’s ad-supported service is likely to be a positive for the company, with some analysts predicting it will generate $8.5 billion in ad revenue by 2025, its future is not guaranteed with the strong competition present. Disney and Netflix must face companies like Discovery of Warner Bros., Comcast, Supreme, and others that offer ad-supported streaming services. Investors are better off looking for a streaming stock whose earnings are less dependent on an unpredictable industry.

Amazon: Safety in diversification

Unlike Netflix, Amazon is in no way dependent on streaming subscriptions as its main source of revenue. Its streaming service is more of a bonus to its lucrative Prime subscription, which includes expedited shipping, e-books, music, games, and more. As of 2022, US Prime subscriptions were 159.8 million, 48% of the country’s population.

Amazon has diversified its earnings to include a wide range of businesses with segments categorized as North America, International, and Amazon Web Services (AWS). The first two primarily comprise revenue from Prime subscriptions and its retail businesses in separate geological locations. AWS is Amazon’s cloud computing business that hosts applications and websites around the world. As of December 2021, 60% of Amazon’s revenue came from its North American segment, while International provided 27% and AWS 13%.

The e-commerce titan has steadily grown its North American segment, with net sales up 10% to $74.4 billion in its third quarter. While international sales fell 12%, its AWS segment appeared to be working overtime, rising 33% to $19.7 billion. The company’s cloud computing business has seen exponential growth since its launch in 2006, with AWS responsible for 34% of the $200 billion cloud market, more than any other company. For reference, the company with the second largest market share is Microsoftthe Azure service with 21%.

What is the best buy?

Taking a look at how Amazon and Netflix’s financial metrics compare, Netflix has a more attractive P/E and PEG ratio, suggesting it’s the cheaper option; however, Amazon is the least risky stock in terms of debt.

Metric Amazon Netflix
P/E ratio (last 12 months) 115.13 19.96
PEG ratio (5 years expected) 4.19 2.06
Debt to EBITDA ratio 0.442 0.746

Data source: YCharts and Yahoo! Finance

Consequently, Amazon’s diverse income streams make it a better buy for long-term investors. The company’s growing cloud business and recent investments in healthcare and robotics mean its shares could see significant gains over time.

In recent months, Netflix has made promising moves with popular content, plans to crack down on password sharing, and its next level with advertising. However, the fact is that almost all of their revenue comes from streaming subscriptions which can be volatile along with the stiff market competition.

As a result, Amazon is the clear choice for investors who want a secure investment for years to come.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. dani cook has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Amazon, Microsoft, Netflix and Walt Disney. The Motley Fool recommends Comcast and Warner Bros. Discovery, Inc. and recommends the following options: $145 January 2024 Long Calls at Walt Disney and $155 January 2024 Short Calls at Walt Disney. The Motley Fool has a disclosure policy.

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