Better Buy Amid Tech Diversification: Apple (AAPL) Vs. Amazon (AMZN) Stock
Zacks Investment Research | Mar 26, 2019 02:28AM ET
Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) are two of the largest companies on the planet. The tech powers have reshaped industries and changed the way millions of people function on a daily basis. But today, Apple and Amazon face possible transition periods as they try to expand their offerings to drive growth.
Apple Innovation
Apple announced on Monday some long-awaited offerings that aim to bolster its Services business. Tim Cook’s company unveiled its streaming TV offering that hopes to one day compete alongside Amazon Prime, Netflix (NASDAQ:NFLX) , Hulu, and Disney’s (NYSE:DIS) soon-to-launched streaming services dubbed Disney+. Apple, in a seemingly unoriginal move, will launch its Apple TV+ streaming offering this fall.
Most of the details are still up in the air, but original shows are set to include offerings from M. Night Shyamalan, Steven Spielberg, and other Hollywood giants. The firm also showed off an updated version of Apple TV that makes show recommendations and more, in an effort to compete with up-and-comers such as Roku (NYSE:R) .
Plus, Apple detailed its $9.99 per month, magazine-heavy news service, along with an Apple credit card in partnership with Goldman Sachs (NYSE:GS) . The last big offering Cook’s company revealed at Monday’s launch event was its new ad-free, subscription-based gaming service called Apple Arcade.
All of the recent announcements are part of Apple’s push to expand its Services business that currently features Spotify (NYSE:SPOT) competitor, Apple Music and more. Apple is determined to make more money from its 1.4 billion active devices as iPhone sales slow.
Amazon Expansion
Jeff Bezos’ company is in the midst of rolling out grocery stores throughout the country as it expands its brick-and-mortar footprint, according to reports that began to surface in early March. The new stores are set to be unique from both Whole Foods Market (NASDAQ:WFM) and its cashierless Amazon Go stores. Amazon’s expanded physical grocery and retail push, which also includes book stores, comes as the likes of Walmart (NYSE:WMT) , Target (NYSE:TGT) , Kroger (NYSE:KR) , and others try to expand their delivery and e-commerce options.
Amazon is also set to grow its digital advertising business that currently sits in third place in the U.S. behind only Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) . The e-commerce and cloud computing firm has also expanded its pharmaceutical business to try to challenge CVS (NYSE:CVS) and Walgreens (NASDAQ:WBA) and rolled out more shipping offerings in order to take on FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) .
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Growth Outlook
Moving on, Apple’s adjusted current-quarter earnings are projected to fall 12.8% on the back of a 5.8% revenue decline, based on our current Zacks Consensus Estimates. This would fall below last quarter’s 4.5% top-line drop off. On top of that, quarterly iPhone revenue is projected to tumble roughly 20% to $30.57 billion, based on our current NFM estimate. With that said, the Services unit looks to be one of the lone bright spots, with sales projected to jump over 22% to $11.29 billion.
Overall, Apple’s 2019 revenues are expected to dip 4.2%, with its full-year EPS figure expected to slip 4.5%. The company’s adjusted 2020 earnings are projected to climb over 12% above our 2019 estimate, while revenues are expected to pop 3.1% above our current-year estimate—which would still come in below 2018’s $265.60 billion.
Amazon faces a sales slowdown, but looks ready for far better growth than its peer. Amazon’s first-quarter revenue is projected to climb 16.8% to reach $59.59 billion, with full-year revenue projected to jump over 18% to $275.58 billion. This would mark a slowdown from Q4’s 20% expansion, which itself represented a significant downturn compared to Q3’s 29%, Q2’s 39%, and Q1’s 43%. Peeking even further ahead, Amazon’s top-line looks poised for similar full-year growth in 2020, with revenues projected to surge 17.5% above our current-year estimate to reach $323.72 billion.
At the bottom end of the income statement, AMZN’s adjusted Q1 earnings are expected to soar roughly 43%. The firm’s full-year earnings are excepted to climb nearly 33% to reach $26.93 per share. Plus, Amazon’s adjusted fiscal 2020 EPS figure is projected to climb 50% above our 2019 estimate, in a sign that the tech giant that once neglected earnings is becoming more profitable even as it expands into new industries.
Bottom Line
Apple and Amazon both sport Zacks Rank #3 (Hold) rankings at the moment, based on their mixed earnings estimate revisions activity.
AAPL stock rests around 19% below its 52-week high at roughly $191 per share, which gives the stock plenty of room to run, despite its 21% surge to start the year. Meanwhile, shares of AMZN opened Tuesday at $1,793 per share, down around 13% from its 12-month high.
In terms of valuation, Apple is trading at 15.7X forward 12-month Zacks Consensus EPS estimates, compared to AMZN’s 59X. Clearly, AAPL stock represents more value, but Amazon is trading at a more reasonable multiple compared its previous sky-high forward P/E. With that said, Apple is also a dividend payer.
Both firms are, of course, set to be industry leaders for years to come. In the end, Amazon might be the better buy for growth investors, while Apple could be an income giant to add to your portfolio.
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