For much of the past year, Amazon (NASDAQ:AMZN) and Meta (NASDAQ:FB) shares have moved in a similar direction. Up until Q4 of last year, both stocks grinded higher, helping to push the NASDAQ to fresh all-time highs. This week though, a clear divergence can be seen. Meta flunked its latest earnings report, causing the share price to crash by 26% yesterday. In contrast, Amazon shares are up 12% today due to better-than-expected earnings. So which of the tech stocks should I buy?
The case for Amazon
On the face of it, it could make sense to buy Amazon shares given the better earnings. The company had tempered down expectations for the holiday season, mainly due to supply chain disruption. Yet in reality, net sales for Q4 were up 9% on the same period last year. Impressively, net income came in at $14.3bn, up from $7.2bn in Q4 2020.
This also helped to bring the full-year figures up above consensus. In quite a staggering figure, net sales for 2021 were $469.8bn, up 22% year-on-year. That’s almost half a trillion dollars recorded in a single year! Quite a feat for the tech stock.
It also announced that it’ll be increasing the price of the Amazon Prime service by $20 annually. Although this might cause some to cut their membership, I think the base is very sticky, so see this as a positive for future revenue streams.
However, there are some points of concern to note for the tech stock. The bulk of the gains came from the Web Services (AWS) division. The retail side of things lost money. So I do need to think about the risk of the retail side dragging on future performance due to higher costs. The share price is down 6.5% over the past year.
The case for Meta
Let’s get the bad news out of the way first for Meta. The share price is down 11% over the past year. The results earlier this week showed a slowdown in some key metrics, with the outlook for Q1 that was not great. For example, the daily active users (DAU) is a figure that has grown every quarter since it was introduced several years ago. For Q4, it dropped from the Q3 figure of 1.93bn to 1.92bn. This might not sound like a huge miss, but the fact it was a decrease did surprise investors.
The Q1 outlook for revenue was also below expectations. Analysts were looking for $30bn, but the company came out with estimates between $27bn and $29bn. Given that tech stocks like Meta trade heavily based on future earnings, lowering the expectations of revenue naturally dampens the mood.
However, there are still reasons for me to consider buying shares. Firstly, the pivot late last year in branding to Meta reflects the push towards the metaverse. I think this is going to be the future, so the investment in this area should pay dividends in years to come. Further, I think the market has overreacted to the latest earnings, partly due to the negative sentiment in the market in general right now. Therefore, I think that a short-term bounce back could be seen.
Tech stock battle
Personally, I’d prefer to buy Amazon shares right now. This is based on the momentum from current earnings and the robust strength of the AWS division.
Jon Smith has no position in any share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
