GameStop and AMC Entertainment Holdings have had huge attention from investors for the huge short squeeze which recently happened on their stocks. As a result, stocks of both companies are undergoing extreme volatility as speculators and short-sellers meet in the markets.
Investors, should not be worried with that sideshow. Instead of getting involved with speculative frenzy, buying shares of Netflix and Amazon can deliver better returns over the long term.
Amazon just had its first $100 billion quarter, blowing away expectations, with no signs of slowing down. The pandemic has forced millions to do more shopping online. That greatly helped Amazon hit the 100B mark, as it was ready to give customers anything from diapers to laptops. Undoubtedly, some part of that new shopping habit will stick around long after Covid is gone. Amazon’s quick shipping, great customer service, and vast product line mean it’s the best alternative to in person shopping.
While the company’s e-commerce drives revenue, the huge profit growth is from its Amazon Web Services (AWS) division. In the past 12 months, cash flow went up by 72% to $66.1 billion. AWS, which sells cloud services, makes up 59% of profits in 2020 while being only 12% of sales.
Amazon is well known for huge investments to increase its technology and process. Those investments are delivering results. Even more so, they seem to be expanding. Over the past decade, its gross profit margin doubled from 12.9% all the way to 26.6%.
Netflix was doing very well before Covid hit, but now the fuel is really in the fire. Millions are now spending much more time at home, leading to a large increase in home entertainment demand. This has led to Netflix reaping big benefits.
Netflix reported on Jan 19 as having 203 million subscribers, an increase from 167 million the previous year. The company is creating an average revenue per customer of $11.02. At an annualized rate, that creates nearly $27 billion of revenue. The size of its customer base lets Netflix spend heavily on shows and movies — further separating itself from competitors. This new content then attracts new members while also keeping current subscribers active. The feedback loop is a difficult force to stop, which will provide shareholders with ongoing benefits.
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