GameStop (NYSE: GME) and AMC Entertainment Holdings (NYSE: AMC) has attracted a lot of investor attention recently as part of an epic squeeze. The stocks of AMC and GameStop are experiencing extreme volatility as traders, speculators and short sellers collide in the market.
Investors, however, need not worry about the spectacle that is going on. Instead of participating in the speculative frenzy in AMC and GameStop shares, buying shares in Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) provide superior returns in the long run.
GameStop and AMC shares are experiencing great volatility. Image source: Getty Images.
1. Netflix
Netflix was already gaining customers at a rapid pace and the pandemic added fuel to the fire. Millions of people are relegated to spending much more time at home than they used to, leading to a substantial increase in demand for home entertainment. As a result, Netflix is delivering and reaping the benefits.
On January 19, Netflix reported having 203 million paying subscribers, up from 167 million the previous year. The entertainment giant is generating an average revenue per user of $ 11.02. At an annualized rate, this brings in revenue of almost $ 27 billion. The size of its member base allows Netflix to spend a lot on content – differentiating itself even more from competitors. In turn, the new content should attract new members, while keeping current members on board. The positive feedback cycle will be a difficult force to stop, which will provide a sustainable benefit to shareholders.
In addition, the scale achieved ensures that you no longer need to rely on external financing – making it a less risky stock.
Image source: Netflix.
2. Amazon
Amazon has just reported its first quarter of $ 100 billion in revenue, exploding expectations, and there are no signs that it is declining. The coronavirus pandemic has led millions of people to increase the proportion of online purchases. This benefited Amazon as it was ready to deliver products ranging from toothbrushes to laptops. Undoubtedly, part of the newly acquired purchases will remain for a long time after the pandemic.
Amazon’s fast shipping, best-in-class customer service, and vast product availability mean that finding a better alternative e-commerce service is difficult. The value proposition becomes even better for Prime members, who receive a free two-day referral and access to Prime Video – all for less than the price of a Netflix subscription. It is no wonder that Amazon enrolled at least 150 million members in January 2020.
While the Seattle-based company’s e-commerce operations generate revenue, huge profit growth is led by the Amazon Web Services (AWS) segment. In the last 12 months, operating cash flow increased 72%, to $ 66.1 billion. AWS, which offers cloud computing, storage and database services, accounted for 59% of operating profits in 2020, while representing only 12% of sales.
In short, Amazon is well known for making large investments to increase its capabilities and focus on the consumer experience, rather than competition. These investments are paying off. Furthermore, they seem to be expanding. In the past decade, its gross profit margin has more than doubled from 12.9% to 26.6%.
What this can mean for investors
The frantic buying and selling of GameStop and AMC shares is certainly exciting and makes good headlines. However, long-term investors are not interested in the excitement or excitement of making a quick profit. Amazon and Netflix are clearly better companies that will provide better returns for the prudent investor. Each has more than 150 million loyal customers and is growing and continues to provide products and services that keep them coming back. And although both companies have performed well since July, their shares are trading at or below July levels. For these reasons, it is better to forget about GameStop and AMC and buy Amazon and Netflix.