Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX): If You Buy, You’re Sold

Apple and Netflix show respective earnings yields of 9.3% and 0.18%. Netflix has a negative free cash flow (FCF), which will obviously lead to many unfavorable valuation metrics. After evaluating how these companies have performed and what valuations they have, I believe Netflix is a very uncertain investment.

Competition

If nothing else, this industry has started some serious competition. Netflix, Inc. (NASDAQ:NFLX) has, in my opinion, performed better than either Apple or Amazon. However, it is certainly less stable than either of these two companies. Netflix may continue to do very well, but I also believe that because of the immense competition in this area, the slightest slip up may mean a crashing stock. Diversity may be the best option for these companies. Why is it that Amazon and Apple appear to be more stable? Well, probably because they have more diversity than Netflix. They don’t have all their eggs in one basket.

The foolish bottom line

It appears that Amazon.com, Inc. (NASDAQ:AMZN) wants to be more involved in this area, but how successful will it be? If the past is any indication of the future, it will make the company far more money than they spend. Apple has never had issues generating revenues, and Netflix, Inc. (NASDAQ:NFLX) has performed better than either of its competitors. Diversification may be the key here, but then again, how can you bet against a company that has rewarded its shareholders nearly three times as much as its two other major competitors?

More than anything, it may be most important to always look at alternative motives for these companies. Although Amazon may not generate much income from its actual subscriptions, the side effects are much more noticeable. Once you buy a subscription, you are likely to be sold much more.

The article If You Buy, You’re Sold originally appeared on Fool.com and is written by Tyler Wofford.

Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Tyler is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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