Another small but significant changing of the guard on Wall Street on Friday as the market value of Alphabet (Google) overtook that of Amazon for the first time in 16 months.
Alphabet’s strong 2021 stock rally is continuing since the end of the March quarter and subsequent results which surprised on the upside – especially the 33% jump in ad sales and 34% surge in total revenue.
Alphabet finished Friday with a market value of $US1.622 trillion, while Amazon ended the week with a $US1.616 trillion valuation.
Apple shares have underperformed because of the battle over the 30% take Apple makes from sales from its now ubiquitous App Store. The legal action from games maker Epic Games (Fortnite) could radically change the App Store (and similar arrangements at Google and other companies) if successful.
Alphabet shares rose 2% Friday, taking their year-to-date gains nearly 40%, while shares of Amazon rose 0.6% but are still down on the year (by 1.5%) – which reflects a number of regulatory moves against the company and the looming departure of Jeff Bezos as CEO and his move to executive chair (which shouldn’t change much).
Amazon is well behind the S&P 500 which is up more than 12.6% so far in 2021.
On top of that there’s a feeling that with the pandemic easing, vaccination rates in the US climbing and normality returning to everyday life, that Google’s ad sales will do better than Amazon’s online business over the rest of the year.
That of course ignores the continuing rise in Amazon’s cloud computing business and its own ad business, which while nowhere near as large as Google’s is now a major area of revenue and income. Alphabet’s cloud business is a fraction of Amazon’s (and Microsoft, the number 2).
But Alphabet has abandoned many of its oddball ideas – such as autonomous driving vehicles which have been sold to Toyota and gone more head-to-head with Amazon – and seems to be focusing on extracting more out of its everyday businesses – search and ads.
The idea is to make it easier for smaller merchants using those services to create product listings on Google’s various platforms like Maps and Shopping.
Though it’s free for companies to create listings, analysts expect that Google is trying to beef up its e-commerce platform to create a more attractive environment for advertisers. Besides its shopping and business platform, Amazon has a discrete e-business advertising business as well.
The Wall Street Journal claims Alphabet is also dealing with a broader change in the advertising landscape given an increased emphasis on user privacy that’s prompted a move away from third-party cookies – a line strongly pushed by Apple.
Analysts see greater upside ahead for Amazon shares, which enjoyed better performance earlier in the pandemic before stalling more recently.
The Journal points out that if analysts are right, this burst by Alphabet could end up being brief as Amazon was doing much better before than pandemic than was Alphabet/Google which was floundering.
Google and Facebook have faced numerous regulatory investigations, legal actions (and both have settled globally with media companies to shut them up about the way both tech giants have drained tens of billions of dollars in ad revenues from the legacy media sector and continue to do so).