The Netflix annual report shows that net sales went from $2.2 billion in 2010 to $3.6 billion in 2012. Net income, however, experienced a drop: in 2010, the company made $161 million, or $2.96 per diluted share; in 2012, the company only made $17 million, or $0.29 per diluted share. Free cash flow likewise dipped precipitously: in 2010, the company generated over $131 million while in 2012, the company used $58 million to fund its operations.
Which one is best?
I’m just an ordinary investor like you. I don’t have a crystal ball and I always remember the inherent impossibility of making any attempt to predict the future.
Let’s begin with the obvious: none of these stocks are cheap. They just aren’t. But we’re talking about companies that possess potential ways of making money that might be extremely valuable in the future. The culture loves content, and all three of these might be big players in that arena in the future.
The culture also loves to shop for stuff, and all three companies have done their best to collect, collate, and analyze large amounts of user mathematics to divine advertising and commerce opportunities on individual consumers. Each business is algorithm-dense.
So, again, how should I, or you, as ordinary investors make sense of the fundamental numbers and the business possibilities available to each company?
I’ll start with Netflix, Inc. (NASDAQ:NFLX). At one time, I was mega-intrigued by this name. I can still be, but I don’t like the numbers at this time. Numbers can change though, so I have to dislike something else too, right? Right. I also dislike the idea that content will become more expensive and Netflix is simply going to become another HBO. Hey, if HBO is so great, why doesn’t it have its own separate equity float, know what I mean?
Google Inc (NASDAQ:GOOG) is a smart company. Its employees know computer science. It has incredible brand equity: Google is the web. But sometimes smart isn’t enough for a potential shareholder. I look at Google and wonder if its best-growth days might be behind it. I’ve been hearing that the stock is a candidate for $1000-per-share status. That’s definitely in the cards. Google’s numbers are fine, but one thing always makes me pause with this idea: YouTube. Until Google truly solves that puzzle — i.e., figure out a way to monetize the heck out of the video-clip-distributor in ever-increasing novel fashion — I will always have a little bit of concern. That’s not to say that YouTube is the make-or-break part of the thesis, please note; just speaking for myself, I would love to see Google prove just how smart it is by taking YouTube to some unexpected level.
So that leaves Amazon.com, Inc. (NASDAQ:AMZN). I kind of respect Amazon more than ever these days. I enjoy its shopping platform, I think Bezos is a fascinating CEO, and I have to wonder if Amazon is going to become a big player in Hollywood one day through its Amazon Studios division. I myself have submitted scripts to the website (without success to date) and although I’m not sure Amazon will continue to look to regular users for movies and television projects as the timeline progresses, I nevertheless believe Amazon will eventually challenge and disrupt the models of traditional television and movie studios. You can argue that Google and Netflix will do the same, but here’s the difference: Amazon arguably has integrated retail commerce into its platforms better than everyone else.
Out of the three stocks mentioned today, I think Amazon is worth close study. Yes, its numbers are a concern, but the long-term stock price says that a lot of the smart money believes in its future. Following a crowd is never advisable, but in this case, I’m going with the market.
Steven Mallas has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google, and Netflix. The Motley Fool owns shares of Amazon.com, Google, and Netflix. Steven is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Amazon, Google, Netflix – Which One Should an Investor Buy? originally appeared on Fool.com and is written by Steven Mallas.
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