Amazon vs Meta: Which Internet Stock Should You Buy?

As an investor, you're always on the lookout for the next big thing in the tech industry. Two prominent names that often come up in these discussions are Amazon (AMZN) and Meta (META), formerly known as Facebook. Both companies have made significant strides in their respective fields, but which one should you consider adding to your portfolio? Let's dive into the details to help you make an informed decision.



Amazon: The E-commerce Giant

Amazon started as an online bookstore and has since grown into a global e-commerce powerhouse, offering a vast array of products and services. Its success can be attributed to several factors:

1. Diversified Revenue Streams: Amazon's revenue comes from various sources, including e-commerce, cloud computing (AWS), advertising, and subscription services. This diversification helps mitigate risks associated with market volatility and competition.
2. Strong Brand Recognition: Amazon is one of the most recognized and trusted brands globally, with over 80% of US households having an Amazon account. This brand equity fuels growth across geographies and segments.
3. Robust Logistics and Distribution Infrastructure: Amazon's vast infrastructure, built over 25+ years, underlies fast, low-cost delivery, allowing it to continuously expand its core e-commerce operations.

However, Amazon also faces challenges, such as slim profit margins, workplace safety and job satisfaction struggles, and pervasive counterfeits and inauthenticity.

Meta: The Social Media Powerhouse

Meta, the parent company of Facebook, Instagram, WhatsApp, and Messenger, has a massive user base and is well-established in the social media market. Its strengths include:

1. Large User Base: Meta's Family of Apps had 3.7 billion monthly active users as of Q3 2023, providing a vast audience for advertisers.
2. Growing Revenue: Meta's revenue from the Family of Apps grew by 11% year-over-year in Q3 2023, demonstrating its ability to monetize its user base.
3. Investment in Emerging Technologies: Meta's investments in AI, cloud, and the metaverse position it to capitalize on the next generation of online interaction and communication.

Nevertheless, Meta faces competition from other social media platforms and may need to innovate and adapt to maintain its market share.

Comparing the Two

When comparing Amazon and Meta, consider the following key financial metrics:

1. Revenue Growth: Amazon's revenue grew at a CAGR of 18.7% over the past three years, while Meta's revenue grew at a CAGR of 17.1%.
2. Operating Income Margin: Amazon has a higher operating income margin than Meta (4.6% vs. 1.5%).
3. Levered Free Cash Flow (LFCF) Margin: Amazon has a higher LFCF margin than Meta (3.93% vs. 16.80%).
4. Return on Capital Employed (ROCE): Amazon has a higher ROCE than Meta (8.71% vs. 17.36%).
5. Return on Tangible Assets (ROTA): Amazon has a higher ROTA than Meta (2.70% vs. 10.91%).
6. Return on Total Capital (ROTC): Amazon has a higher ROTC than Meta (3.50% vs. 14.04%).
7. Forward Non-GAAP P/E: Meta is more affordable than Amazon (21.07x vs. 61.75x).
8. Forward EV/EBIT: Meta is more affordable than Amazon (16.76x vs. 52.26x).



Conclusion

Both Amazon and Meta have strong growth prospects in their respective core businesses and have made significant investments in emerging technologies. However, Amazon's diversified revenue streams, strong brand recognition, and robust logistics infrastructure give it an edge over Meta. Additionally, Amazon's higher operating income margin, LFCF margin, ROCE, ROTA, and ROTC indicate better profitability and capital efficiency. While Meta is more affordable in terms of forward non-GAAP P/E and forward EV/EBIT, Amazon's superior financial performance and growth prospects make it the better buy for long-term investors.