After booming through most of the pandemic, the tide turned to Big Tech this year.
Layoffs have become commonplace. Firms overinvested in 2020 and his 2021 boom, and with a recession likely on the horizon, growth has slowed significantly.among the losers alphabet (GOOG -2.22%) (Google -2.10%) When Amazon (AMZN 0.24%)Both stocks have plummeted this year, down 33% and 47% year-to-date.
However, both of these companies are among the largest companies in the world and dominate their respective industries, making a sale a potential buying opportunity. Which are the best things to buy when you’re feeling down? Let’s see what each one has to offer today.
Slow-moving search giant
Alphabet has made a name for itself with its cloud business and other businesses, but the core of the company is its advertising platform, which drives almost all of its profits.
As interest rates rose and fears of a recession swept the market, businesses cut advertising spending to save budgets and prepare for lower consumer spending.
Alphabet reported just 6% revenue growth in its most recent quarter. That’s 11% growth on a constant currency basis. Parent company Google’s profits also fell as it continued to add jobs, with operating profit down 19% to $17.1 billion.
The good news is that management said it will begin reducing hiring from the fourth quarter through 2023 to strengthen margins.
Investors should also keep in mind that the advertising business is cyclical and demand for advertising on Google Search and YouTube will recover as the economy recovers. Similarly, Alphabet suffered a dip in revenue growth during the Great Recession and the recent pandemic, but recovered quickly in both cases.
The e-commerce king enters a new phase
Like Alphabet, Amazon faced many challenges this year, but the e-commerce leader hasn’t hesitated to shed fat after years of being too bloated.
In November, Amazon announced it would lay off 10,000 employees to cut costs and adapt to slowing business growth. Amazon led revenue growth of just 2% to 8% in the fourth quarter.
Job cuts appear to be focused on the Alexa and devices division. business insider.
The company has also halted experiments such as its in-person and telemedicine business, Amazon Care. His Fabric.com, which sells sewing supplies. And Scout, the delivery robot. Additionally, it has canceled or closed dozens of warehouses as the company overstretched capacity during the pandemic, which saw sales surge.
These job cuts and cost-cutting measures come after Amazon lost billions of dollars outside of Amazon Web Services this year. Through his first three quarters, the company lost his $8 billion in the International and North America segments. These segments consist primarily of e-commerce businesses, but they also include loss-making businesses like Alexa, making it difficult to analyze their performance.
Beyond temporary challenges, Amazon’s revenue has reached a point where it’s difficult for the company to sustain its historically high growth rate. The company has surpassed his $500 billion in revenue this year, and a 20% increase in sales would mean an additional $100 billion in revenue. This is a lot of work for any company, even Amazon.
Which one should I buy?
Alphabet and Amazon look well positioned to outperform over the long term, even if they are likely to feel the effects of next year’s recession.
But as the economy picks up, Alphabet looks poised to bounce back. Just as one of the first costs to be cut during tough times is advertising, it tends to increase as soon as the return on investment is justified. And with Google dominating internet search, there is no doubt that it will continue to be the leading digital advertising platform.
Alphabet also trades at a price-to-earnings ratio of 19, much cheaper than Amazon, and the slowdown in hiring means profit margins are likely to rise if business recovers.
Amazon, on the other hand, is losing money in many areas, so it looks like it still has work to do to improve its margins. It’s unclear when the e-commerce segment will return to profitability, and the cloud infrastructure business remains a juggernaut, but the company has even warned of slowing growth on his AWS.
Amazon is also significantly more expensive than Alphabet, making it a riskier stock to own.
Of these two FAANG stocks, Alphabet looks like the better buy before 2023 begins. The company has a clear path to recovery and the stock looks cheap. Amazon, on the other hand, looks set to face more challenges in rebuilding its earnings, leading to a higher stock price.
Both of these stocks are worth owning, but Alphabet is likely to outperform over the next year.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Jeremy Bowman has a position at Amazon.com. The Motley Fool has positions in and recommends Alphabet and Amazon.com. The Motley Fool’s U.S. headquarters has a disclosure policy.