Amazon.com, Inc. (NASDAQ:AMZN), Google Inc (NASDAQ:GOOG), and Netflix, Inc. (NASDAQ:NFLX) are considered giants in the field of technology. Besides being tech entities, they are explorers of new content-distribution paradigms. I find the business models of all three intriguing, but which one of them would be best for a long-term portfolio. Let’s take a brief look at them.
Amazon – a river flowing with shareholder value
Like the Amazon River, Amazon.com is a big business model. It wants to do everything for everybody. You want a toaster to go along with that book and classic video game? Chances are you can find them on the retailer’s website.
Amazon.com, Inc. (NASDAQ:AMZN) has had quite a run over the years. I remember thinking I did well a long, long time ago when I bought shares at $16 on a Tuesday and sold them the next day at $18 (it may have been a Wednesday/Thursday combination, I can’t remember; doesn’t really matter, you get it). I should have held on. Amazon shares currently trade around $280.
Amazon.com, Inc. (NASDAQ:AMZN) is into cloud computing, content streaming, and content production. It does more than just sell stuff. It is expanding the way in which it generates top-and-bottom-line growth, and it is led by a very smart man named Jeff Bezos. Still, the stock is near a 52-week high and is considered by traditional valuation methods expensive.
According to the company’s annual report, net sales have been increasing very nicely over the last several years: it has gone from $34 billion in 2010 to $61 billion in 2012. Net income has dropped, though: while it was positive at over $1 billion, or $2.53 per diluted share, in 2010, the company reported a loss of $39 million, or $0.09 per diluted share, in 2012. Free cash flow has also declined: in 2010, $2.5 billion was generated; in 2012, the free-cash figure was $395 million.
Google – a misspelled, but awesomely-named-anyway, search engine
Googol, Google, Gaga…it doesn’t matter. Google Inc (NASDAQ:GOOG) is a great brand name. It’s a great search engine. Everyone uses it. Bing is cool too, but it’s a Google world. For now anyway.
Google Inc (NASDAQ:GOOG) has really been doing insanely awesome (wrong company, I know) during this latest bull run. The 52-week range is measured between $562 per share and $920 per share. At the time of this writing, shares could be purchased for roughly $890.
Like Amazon.com, Inc. (NASDAQ:AMZN), Google Inc (NASDAQ:GOOG) wants it all, it isn’t content with just search and ads associated with search. What did I say earlier — cloud computing, content streaming, and content production? Yep, all three. The latter two is represented by YouTube. Granted, YouTube is still evolving, but if Google has its way, that asset will be making a lot of money at some point.
Google Inc (NASDAQ:GOOG)’s annual report tells a different tale than Amazon.com, Inc. (NASDAQ:AMZN)’s. Top-line Revenue in 2010 was $29 billion; in 2012, it was $50 billion. Net income from continuing operations went from $8.5 billion, or $26.31 per diluted share, in 2010 to well over $10 billion, or $32.46 per diluted share, in 2012. Free cash flow was $7 billion in 2010 and it was $13 billion in 2012. These free-cash stats take into account cash from operations and capital expenditures; it should be noted that in 2012, there was significant acquisition spending of over $10 billion listed on the cash-flow statement.
Netflix – Amazon may be a river, but streams can be powerful too
Netflix, Inc. (NASDAQ:NFLX) used to be all about physical media. Physical media is essentially dead as an investment theme. It’s now all about streaming and other-screens. Netflix is continuing to take advantage of this transition.
Is Netflix, Inc. (NASDAQ:NFLX) a value? Will it be around years from now? Netflix delivers a compelling experience to the consumer, but the cost of content is sure to rise; Hollywood isn’t going to simply sit back and not try to take its perceived fair share of the pie. That’s the big risk: Netflix might be priced out of cost-effectiveness at some point. It’s a real concern.
The stock has been on a wild ride at times. The 52-week low is about $52 per share, the 52-week high is a little under $249. At the time of this writing, Netflix, Inc. (NASDAQ:NFLX) was trading at $218.
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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