Better Buy: Netflix vs. Amazon

They were the “middle children” of the FANG family — when FANG was all the rage — but Amazon.com (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) continue to do right by their investors. Amazon and Netflix are the undisputed champs of their online specialties. No one else is really close.

Both stocks have been rallying nicely since bottoming out less than three months ago. Amazon shares have soared 29% since bottoming out on Christmas Eve. Netflix is faring even better, up 55% since the day after Christmas. The middle children are back, but let’s see which one would be the better choice if you only had room for one in your portfolio…

Earning their keep

Amazon and Netflix have been two of the best-performing tech stocks over the years, and as big as they may be, they’re still finding ways to grow at heady clips. Revenue growth has actually accelerated at Amazon for three consecutive years, climbing 31% in 2018. Netflix has also picked up the pace in each of the past three years, clocking in at 35% for all of last year.

The two dot-com darlings aren’t just smoking on the top line, either. Amazon and Netflix have also topped Wall Street expectations on the earnings front in each of the past three quarters.

Neither stock is cheap when measured by traditional valuation metrics. They both trade at lofty earnings multiples, and even if we go all the way out to 2020, we find Netflix and Amazon fetching 56 and 42 times next year’s earnings, respectively. Eyeing the top line, we see Netflix trading at a little more than 10 times trailing revenue. Amazon is priced at what seems to be a more reasonable 3.6 revenue multiple, but it also toils away in the much lower-margin business of physical retail…

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