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MARCH MADNESS: Amazon (AMZN) vs. Google (GOOG)

While the matchup between Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) could prove to be an intense battle, truth be told, the best game plan may be for each opponent to simply let the other one implode on itself. See, each company has flaws in its present form, and rather than try to outplay each other, Amazon and Google might be better served by just letting the other trip over its own flaws.

march-madness-250Still, this is a pretty even pairing that may be in question right down to the buzzer.

Amazon (AMZN)

No need to mince words about the 800-pound gorilla in the room — Amazon.com is barely profitable because it spends huge amounts of money all in the name of growth. In fact, at this point the company seems nearly-addicted to its free-spending ways, unsure of how to drive growth without buying it.

The end result is habitual paper-thin profit margins, usually less than 2% of sales, and often closer to 0% than even 1%. It should be a concern to current and prospective AMZN owners, because even the slightest headwind could tip the scales to the wrong side of 0%, and the next time it happens the company may not be able to dig itself out.

In other words, while a lack of wide margins right now is forgivable, nothing about the business model and the company’s current initiatives suggests wider margins are in the cards anytime soon.

Be that as it may, it’s a reality that hasn’t been a major impasse for AMZN yet. Instead, traders have been impressed by years of revenue growth regardless of its cost, making Amazon.com one of the market’s most rewarding investments over the past decade. AMZN is worth more than ten times what it was worth ten years ago.

The key has been constant innovation and new business lines that are not just interesting, but compelling. Cloud storage was one such business. On-demand videos was another. The introduction of the Kindle tablet was another. They all buy the company more and more time, and though they’re not profit-driving initiatives, Amazon has proven it can constantly come up with business ideas that hold a great deal of promise for the future. For investors, that’s enough.

One of the admittedly cooler concepts Amazon has unveiled recently is a marketplace designed promote innovative products from smaller, startup companies.

It’s in the same vein as — and perhaps an homage to — television’s Shark Tank and online fundraising site Kickstarter. In fact, the “Amazon Exclusives” portion of the website features some products that have appeared on Shark Tank and been funded by Kickstarter campaigns.

While it’s unlikely Amazon Exclusives will make a serious dent in sales or profits, it does show that Jeff Bezos and his team are still creative after all these years.

Google (GOOG)

In the same sense Amazon.com dominates the e-commerce landscape, Google dominates the web-search landscape. As of February, Google held 58% of web-search market share on a global basis, and held a 65% market share in the United States among desktop-driven searches. The mobile-search market share picture is a little fuzzier, but considering Android was the operating system found on 76% of the smartphones shipped in the fourth quarter of last year, there’s no way to argue Google doesn’t dominate that market too.

Said more directly, Google is still king of the hill, and that sheer size allows it to keep competitors at bay.

There’s an inherent downside to already controlling the majority of the market, however. It leaves little to no room for organic growth. That puts the growth onus on new initiatives and products, where Google hasn’t always been a shining star.

Sure, Gmail, Google Docs and Android are all well-used and well-loved services or products that bear revenue now, and will bear revenue in the future. How much money was wasted on the now-canned Google Glass project though? The Google+ entry into the social-networking space went nowhere, and left the search giant out of a very lucrative arena that Facebook, Twitter, and Instagram dominate … and make billions by doing so.

And, let’s not forget Google has missed earnings estimates in each of its past five quarters, as the company just doesn’t seem to be extracting enough revenue from millions of users of its services and products. It may well be a sign the company is nearing its maximum capacity to drive sales and profits.

Our First-Round Pick: GOOG

It’s a tough call. Hitting a wall or not, Google is a cash cow, and will be for a long time. On the flip side, Amazon is a proven growth machine, even if only at a high price. This observer/investor chooses Google as the better of the two opponents, though this observer/investor also wouldn’t be surprised if the crowd thought differently.

Let the voting begin.

Head back to the Stock Market Madness bracket to vote for your favorite stocks and check out other previews!

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/march-madness-amazon-com-inc-amzn-vs-google-inc-goog/.

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