Tech has been on fire for the last few years, and companies at the top of their game have been reaping considerable rewards for investors. Facebook, Inc. (NASDAQ: FB) has the largest social media following on the planet, Netflix, Inc. (NASDAQ: NFLX) is the world's most popular streaming service, and Amazon.com, Inc. (NASDAQ: AMZN) is the biggest e-commerce company across the globe.
While each company is the keystone of its respective industry, which of these three tech titans provides investors with the greatest opportunity for years to come? This isn't just a rhetorical question: these are also represent my three top stock holdings. Let's dive in and find out who has the best prospects.
Continue Reading Below
A review of several financial metrics will provide insight into to financial stability of tech's best and brightest:
While Amazon generates nearly five times more revenue than Facebook, and 15 times more than Netflix, Facebook actually produces greater net income and free cash flow than its e-commerce rival. Amazon has become the e-commerce leader and one of the world's largest retailers by continuing to invest heavily into growing its footprint. Netflix has the worst metrics of the three, as streaming is its sole business and it has taken on significant debt and generated negative free cash flow to finance its worldwide expansion and build out local content.
With sufficient cash, no debt and the highest net income and free cash flow of the three, Facebook dominates the first round.
Financial fortitude winner = Facebook
Recent results and growth prospects
The case for Facebook
From its inauspicious IPO, Facebook has become the dominant social media network on the planet, boasting four of the top 10 social media sites in the world. Facebook's flagship offering hosts over 2 billion users, while WhatsApp numbers 1.3 billion, Messenger counts 1.2 billion, and Instagram trails with 700 million. Those numbers continue to grow, with monthly active users up 17% in the most recent quarter. Billions of eyeballs have translated to massive advertising revenue, and Facebook is part of a duopoly that accounts for nearly all new digital ad spending. The company has also been making significant investments in artificial intelligence. Facebook's revenue hit $9.3 billion in the most recent quarter, up 45% over the prior year, while net income grew 71% year over year.
The case for Amazon
Amazon began life as an online bookseller, but in learning to sell books more efficiently, the company realized that it could sell nearly everything online. Perhaps its most important revelation was that customer data provided a competitive edge. Not content to rule over e-commerce, the company has expanded into cloud computing, streaming video, smart speakers, and most recently groceries. The company just recorded the best Prime Day in its history, and Consumer Intelligence Research Partners estimates that Prime has 85 million members in the US. Amazon's greatest opportunity may be in artificial intelligence, which reaches into every aspect of its business. In its most recent quarter, Amazon's revenue grew to $37.96 billion, a 25% increase year over year. Net income dropped 77%, as the company invested heavily in future growth.
The case for Netflix
From humble beginnings mailing DVDs in little red envelopes, Netflix has evolved into the foremost streaming service worldwide, with 104 million subscribers, more than half of which come from its international markets. Netflix has been spending heavily on original content, both at home and abroad, investing an estimated $6 billion in programming this year alone. That spending is paying off, as the company recently achieved 91 Emmy nominations for its original shows, nearly doubling the prior year count. The company has barely tapped its global market, which could grow to six times its current size. In its most recent quarter the streaming pioneer grew revenue to $2.87 billion, up 32.3% over the prior year quarter, while its earnings per share jumped 67% year over year.
In terms of recent results, Facebook has produced the most impressive growth in revenue, operating margins, and earnings over the trailing twelve months, as well as in the most recent quarter.
Recent results winner = Facebook
In terms of future growth, the edge here has to go to Amazon. E-commerce in the most recent quarter reached only 8.2% of total retail sales in the US, but that number continues to grow. While Facebook may dominate social media, and Netflix may be the king of streaming, Amazon will likely continue to increase its total share of all retail sales, while still growing in its other verticals.
Future prospects winner = Amazon
Stock performance and valuation
So far this year, these respective industry leaders have trounced the broader market, with Netflix, Facebook, and Amazon up 44%, 41%, and 25% respectively. That outperformance is even more pronounced over the last three, five, and ten year periods. Netflix has been the clear standout, having returned over 1,000% in the last decade, more than double Amazon's 400% return, and triple Facebook's 326%.
Stock performance winner = Netflix
From a price to earnings perspective, you might be surprised to find that Amazon has the highest valuation at 238 times trailing earnings, with Netflix following close behind at 215. Facebook is the clear winner, with a much more reasonable multiple of 35. Forward multiples for the three still find Amazon with the highest valuation, at 250 times forward earnings, followed by Netflix with 152 times, and Facebook with 31 times. It appears investors anticipate a far greater opportunity for the e-commerce juggernaut going forward, accounting for its massive valuation.
Valuations winner = Facebook
While all three companies have been standouts in recent years, Facebook is the best place for investors' money based on its superior balance sheet, impressive recent results, and reasonable valuation. Still, as the leaders in each of their respective industries, all three companies might find homes in a well-diversified portfolio.
10 stocks we like better than NetflixWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Netflix wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017