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Better Buy: Amazon (AMZN) vs. Facebook (FB) Stock

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Both Facebook (FB - Free Report) and Amazon (AMZN - Free Report) report their quarterly financial results during the week of July 23. The question is should investors consider buying shares of either Facebook or Amazon? And is either tech giant a clear winner at the moment?

Business Overview

Facebook closed the first quarter with 1.45 billion daily active users, which marked a 13% jump from the year-ago quarter. Meanwhile, the social media company’s MAU’s also popped by 13% to hit 2.2 billion. And investors should note that these user totals don’t even include the hugely popular and quickly expanding WhatsApp or Instagram—which recently surpassed 1 billion monthly active users. Facebook’s photo-sharing app alone crushes Twitter (TWTR - Free Report) and Snapchat’s (SNAP - Free Report) combined user totals .

The company’s massive user base has helped it gain a large share of advertising dollars. Plus, Facebook, along with Google (GOOGL - Free Report) , are set to continue to grab a ton of ad revenue, especially as traditional TV fades. And this is highly important since roughly 99% of Facebook’s total Q1 revenues came from advertising.

Meanwhile, Amazon’s e-commerce dominance has forced the likes of Target (TGT - Free Report) , Walmart (WMT - Free Report) , and nearly every other retailer to revamp their business models. Amazon’s AWS cloud hosting business is also successful, helping the company compete against Microsoft (MSFT - Free Report) , Google, and IBM (IBM - Free Report) .

Furthermore, Amazon has spent more money on its Amazon Prime Video service as it aims to take on Netflix (NFLX - Free Report) , Hulu, and soon enough Disney (DIS - Free Report) and Apple (AAPL - Free Report) .

Stock Movement

Shares of Amazon have outpaced FB over the last three years, having climbed 272% compared to Facebook’s roughly 113% surge. This trend continued over the last 24 months, with AMZN stock up 144% against FB’s 74% climb. Amazon stock has topped Facebook since the start of the year as well. Still, despite this disparity, investors should note that both stocks currently sit near their all-time highs.

 

Valuation

Moving on to valuation, investors will once again see a big difference, but this time in Facebook’s favor. AMZN is currently trading at 107.4X forward 12-month Zacks Consensus EPS estimates, which marks a massive premium compared to the S&P 500’s 17.3X. However, it is worth noting that Amazon and its management team don’t care much about its valuation picture, as they have pursued rapid growth and expansion over almost everything else.  

On the other hand, Facebook stock is currently trading at 24.1X forward 12-month Zacks Consensus EPS estimates, which represents a substantial discount compared to its industry’s 32.5X average. Furthermore, FB has traded as high as 31.5X over the last year, with a one-year median of 27X.

 

Investors will also see that Facebook is currently trading above its five-year low of 20X. But, Facebook stock looks rather attractive at its current level compared to its own historical standards.

Outlook

Facebook, which is set to release its Q2 financial results after market close on Wednesday, July 25, is projected to see its revenues climb by over 44% to touch $13.43 billion, based on our current Zacks Consensus Estimate. Looking a bit further ahead, Facebook’s full-year revenues are expected to climb by nearly 41% to touch $57.29 billion.

FB’s adjusted quarterly earnings are projected to pop by 32.6% to reach $1.75 per share, while its full-year EPS figure is expected to expand by more than 25%.

Amazon is set to release its second-quarter earnings results following the closing bell on Thursday, July 26. And its growth picture looks similarly stellar. 

AMZN is expected to see its Q2 revenues soar by nearly 41% to $53.46 billion. Amazon’s full-year sales are projected to reach $237.93 billion, which would mark nearly 34% growth.

Meanwhile, AMZN’s quarterly earnings are expected to skyrocket 522% from $0.40 per share in the year-ago period to $2.49 per share. Amazon’s fiscal 2018 earnings are expected to expand by nearly 179%.

Bottom Line

Amazon has seen its earnings estimate revision activity trend in the wrong direction over the last 60 days, for both the quarter and the current year, which helps contribute to Amazon’s Zacks Rank #3 (Hold). Meanwhile, Facebook has earned four upward earnings estimate revisions for both Q2 and the full year, with 100% agreement to the upside, all within the last 30 days.

Facebook is currently a Zacks Rank #2 (Buy) and sports an “A” grade for Growth in our Style Scores system. Therefore, FB stock looks like it is clearly the better buy over Amazon at the moment given its growth outlook, positive earnings revision trends, and its solid valuation picture—especially compared to AMZN.

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