Better to Buy Fractional Stocks Now: Amazon or Alphabet?
The first six months of 2022 have been marked by wild volatility and market-shattering news events, such as Russia’s invasion of Ukraine and the Federal Reserve’s biggest rate hike in over a quarter of a century. Yet amid this constant diet of news, investors have become increasingly fascinated with companies announcing stock splits.
A stock split is a way for a publicly traded company to change its stock price and the number of shares outstanding without affecting its market capitalization or operational performance. Adopting a forward stock split is a way for companies to make their shares more affordable in nominal terms to retail investors who may not have access to fractional stock investing.
More importantly, stock splits are seen as a positive sign by Wall Street and investors. A company’s share price would not be high enough to warrant a spin-off if it did not perform well and outperform its competitors.
Earlier this year, FAANG shares Amazon (AMZN 3.10%) and Alphabet (GOOGL -0.37%) (GOOG -0.48%) both have announced plans to split their shares 20-to-1. Amazon’s stock split has already taken effect (effective June 6), while Alphabet will split its shares on July 15.
The big question is, which fractional stock is the best buy? at present?
The shell to add Amazon to your cart
With the Nasdaq Compound Losing up to 34% in value since hitting its closing high in mid-November, Amazon has become quite an attractive offer for a variety of reasons.
For starters, Amazon is in thin air in the retail landscape. According to a report published by eMarketer in March, Amazon is expected to account for 39.5% of online retail sales in the United States in 2022. For context, the #2-15 online retail market shares are expected to combine for 31% of all national retail sales. spend this year. Amazon has a lead of more than eight percentage points over its 14 closest competitors on a combined base.
While it’s easy to be won over by the company’s dominant market share in online retail, what’s far more important is that its core e-commerce marketplace drives consumers to buy. Prime subscriptions. As of April 2021, Amazon had over 200 million Prime subscribers worldwide. The annual fee collected from Prime members is what gives the company the freedom to invest in its logistics network and undercut prices from other retailers.
Yet what’s interesting about Amazon is that its online marketplace doesn’t matter much to its long-term profitability and operating cash flow. Although its online marketplace accounts for the lion’s share of its sales, its cloud segment, subscription services and advertising are far more important. This is a crucial point, as it means that Amazon’s retail segment could struggle, but cash flow and profits can still increase significantly.
Amazon Web Services (AWS), the company’s cloud services segment, is the world’s leading provider of cloud infrastructure. According to a Canalys report, AWS reported around a third of global cloud infrastructure spending in the first quarter. Because cloud services operating margins are many multiples greater than those associated with its online marketplace, Amazon has the potential to nearly triple its operating cash flow over the next five years.
The briefcase to complete your search with Alphabet
On the other side is Alphabet, the parent company of internet search engine Google and streaming platform YouTube. Like Amazon, Alphabet became an incredible business as the Nasdaq plunged.
Alphabet’s fundamental operating segment is the Google search engine. If you thought Amazon’s market share in online retail was impressive, you might as well crown Google as a monopoly. In the 24-month period ending May 2022, Google accounted for between 91% and 93% of global internet search share, according to data from GlobalStats. With such a dominant position in global search, Google has excellent ad pricing power.
Google can thrive in almost any economic environment. With the exception of the early stages of the COVID-19 pandemic, Google’s ad revenue has consistently grown by double digit percentages for more than two decades.
However, Google may no longer be Alphabet’s main driver of operating cash flow. On the contrary, one of Alphabet’s other sales channels could claim this title. For example, YouTube is the second most visited social media website on the planet, with 2.56 billion monthly active users. YouTube’s rapid rise has put it on track to generate nearly $28 billion in annual ad revenue.
There is also Google Cloud, which is the world’s third largest cloud infrastructure provider. Google Cloud has grown its sales faster than AWS, although it only controls 8% of cloud services spending, compared to 33% for AWS.
Given the juicy margins that cloud infrastructure services bring to the table, Google Cloud could play a significant role in potentially doubling Alphabet’s operating cash flow by mid-decade.
The best fractional FAANG stock to buy now is…
Now that we’ve taken a closer look at these highly profitable industry titans, let’s get back to the question: which fractional stock is the better buy right now, Amazon or Alphabet?
Before expressing my point of view, note that whichever stock offers the lowest return, shareholders are unlikely to complain. Amazon and Alphabet both have bright futures, and investors with a long-term mindset can grow their wealth with either company.
That being said, Alphabet is the most attractive fractional stock to buy right now. The reason is simple: market dynamics.
When bear markets occur, it is common for valuation multiples to compress and Wall Street to seek safety in low-valued stocks. Although Amazon’s stock price is down 43% since hitting an all-time high, it’s still valued at 138 times expected earnings this year and about 16 times cash flow projections. Wall Street operating cash.
Meanwhile, Alphabet is valued at 14 times estimated operating cash flow in 2022 and an extremely reasonable multiple of 20 times Wall Street consensus earnings. Those numbers are even lower if you exclude Alphabet’s nearly $134 billion in cash, cash equivalents and marketable securities. With similar sales growth prospects for both companies, Alphabet’s growth P/E ratio is far more attractive than Amazon’s, making it the better buy.