Amazon (NASDAQ: AMZN) and Alphabetin (NASDAQ: GOOG) (NASDAQ: GOOGL) Google is two of the largest and most successful companies in the world. Google has become synonymous with search and the Amazon market is the epitome of consumer convenience. And both titans overcame the S&P 500 in the past one, three, five and 10 years – although Amazon’s stock has soared 815% in the past decade, far outpacing Alphabet’s 235% gain. Which stock is the best investment today?
E-commerce and digital advertising
Alphabet’s main source of revenue comes from its business at Google, specifically in the digital advertising segment. This is driven by Google’s absolute dominance among search engines – Google’s market share has consistently been close to 90% over the past decade. This allowed the company to collect a huge amount of data, making its ad buying and selling tools immensely popular with marketers. As a result, Google consistently captures more than 30% of global digital ad spend.
Image source: Getty Images.
In comparison, Amazon generates most of its revenue through its e-commerce business. The company commands about 39% of the e-commerce market in the United States, while Walmart is the next closest competitor, with only 5% of the market. While this business comes with much lower margins than Google’s advertising business, Amazon’s highly profitable cloud computing business helps to compensate, giving the company a tremendous advantage over other online retailers.
In addition, Amazon is moving aggressively towards digital advertising, and the company appears to be taking market share from Google. Investors should note that Amazon has many of the advantages of leaders like Google and Facebook, including large amounts of consumer data, tools to help marketers buy ads, and publishers to monetize advertising space, and various content platforms like Fire TV and Amazon.com, where you can sell your own ad inventory. As a result, Amazon’s share of digital ad spending in the United States increased by 2% in 2020, while Google’s fell by 2%.
| Company | 2019 Market Share | 2020 Market Share |
|---|---|---|
| 31.6% | 29.4% | |
| Amazon | 7.8% | 9.5% |
Data source: eMarketer.
Google is still the leader by far, but Amazon has a history of upsetting the status quo. The company’s online market and streaming platforms (Fire TV and Twitch) are popular content hubs and can be powerful growth drivers for Amazon’s ad business for years to come.
The cloud business
According to research firm Gardner, Amazon Web Services (AWS) and Google Cloud Platform (GCP) are market-leading providers of cloud infrastructure and platform services. But while both companies offer storage, computing, databases, analytics and other tools, Amazon launched its cloud computing service two years before Google and never gave up on that leadership. Today, AWS still has a more comprehensive offering and has achieved broader adoption. In fact, AWS is the world’s leading provider of cloud services, with 32% of the market in the third quarter of 2020, compared to 7% for Google Cloud. As you can expect, this means that AWS generates much more revenue, although Google Cloud is growing faster.
| Company | First 9 months of 2019 | First 9 months of 2020 | change |
|---|---|---|---|
| GCP Revenue | $ 6.3 billion | $ 9.2 billion | 46% |
| AWS Revenue | $ 25.1 billion | $ 32.6 billion | 30% |
Data source: Alphabet and Amazon SEC files.
The future
Amazon could easily take a strong step towards electronic games and sports. Amazon Games is the company’s in-house game development studio, and with AWS for content delivery and Twitch as a way to engage players and monetize electronic sports, it’s not hard to imagine Amazon as a serious competitor in this space.
Furthermore, if Amazon aggressively pursues this multi-billion dollar market, the company is likely to be more profitable than other gaming companies – because Amazon already has the infrastructure and tools needed to create games and host content, while 90% of As largest public gaming companies in the world rely on AWS for these services.
In other words, this could be a very high margin business for Amazon. To keep up with the company’s foray into games, investors should pay attention to the launch of Amazon Games New world in May 2021.
Alphabet, on the other hand, has its “other bets” business, which includes Waymo, the company’s autonomous car company. According to Swiss investment bank UBS, the autonomous vehicle market may be worth $ 2.8 trillion in 2030, and Waymo is well positioned to receive a fair share. The company’s autonomous vehicles have recorded more than 20 million miles in the real world, far exceeding the competition, and Waymo recently started offering signage services to the general public in Phoenix. If the moon’s movement pays off, it could create another huge revenue stream for Alphabet, perhaps even surpassing that of its Google businesses.
The verdict
Investors should pay attention to both companies’ ability to sustain revenue growth in the long run. Together, these titans are worth more than $ 3 trillion, and growth tends to slow as business matures.
However, Alphabet and Amazon are innovative and well-run companies with deep pockets and a bright future – I don’t think investors can go wrong with any of them. That said, I think Amazon has an advantage here. The company has two different market-leading businesses, which is an incredible achievement. In addition, Amazon has a larger addressable market and the company is growing faster than Alphabet as a whole.