Today we will be talking about Amazon vs Google from the perspective of the Price to Earnings ratio. Let’s take a look at Amazon. In 2022 Amazon’s stock went down nearly 50% because of the decline in e-commerce business, but looking at the past 10 years Amazon as an investment looks amazing. Amazon’s revenue has risen by 741% in the last 10 years to $513.98 billion and operating income has increased 1,700% to $12.25 billion. Those are very impressive numbers and if you look at the US e-commerce market overall Amazon is number one with 38% of market share and the nearest competitor Walmart has only 6% share of the e-commerce market. Clearly, Amazon is a way ahead of any competition. Amazon shares have increased 612% in the past 10 years and if you invested $10 000 in Amazon shares in January 2013, today you would have $78,138. This $78,138 represents patience and long term investing strategy which is immune from temporary short term market declines. However recently there is a problem with Amazon stock when you compare it to the competition. There is a deep decline in Amazon’s free cash flow starting in around May 2021. This shows us how Amazon is much more sensitive to economic declines than the competitors. Decline in free cash flow translates into the increased price to earnings ratio for Amazon. Microsoft Google and Apples price to earnings ratio ranges from 19 to 28 and Amazon stands at 77 that is a huge difference. A high P/E ratio could mean that a company’s stock is overvalued, or that investors are expecting high growth rates in the future. It is very hard to determine which one is true and I’m not going to elaborate on this but such a high P/E ratio tells you that competing companies are better buys at this moment. That’s why I only purchased 330 shares of Amazon and 791 of Google because in my view Google is a better investment than Amazon. My goal is to get to 1000 shares of Google. Please watch the video below for more information.
