While the elite FAANG stocks were much sought-after at the beginning of last year, things took a grim turn around latter of half of 2018, thanks to a slew of privacy scandals and regulatory clampdown.
Amazon (AMZN), despite being embroiled in both the issues as well as reporting weak holiday sales guidance, ended the year up 28%. It was one of the better performing FAANG stocks that year.
On the other hand, Apple (AAPL) mostly steered clear of the privacy scandals and regulatory turmoil, and yet ended the year 7% in red as investors remained worried about the slowdown in iPhone sales and weak demand in China.
And the contrast between the reasons that sent both the stocks down gives a hint about how their performance can be assessed this year. While the reasons were primarily external in Amazon’s case, concerns related to Apple were close-knit to its operations and flagship product.
Time to put a disclaimer. Both stocks have great growth prospects and also hurdles facing them. I don’t claim that one stock is superior over the other either, but that Amazon is currently better positioned than the iPhone maker to overcome the hurdles.
As long as iPhone remains the central driving factor behind Apple’s growth, even a strong services segment will be unable to salvage the once-darling company. Market commentator Jim Cramer recently voiced a similar opinion, stating, “As long as iPhones make up more than 60 percent of Apple’s sales, Wall Street will only care about the razors, not the razorblades.”
Apple is yet to repeat the kind of breakthrough that iPhone was with any other products. In this scenario, CEO Tim Cook’s comments a few days back that the company would miss its Q1 revenue projections by around $5 billion cannot be taken lightly.
On the other hand, Factset predicts that Amazon’s revenue would grow by around 20% in the current quarter.
Another factor that works in favor of Amazon is that it studies the markets that it operates in and evolves according to consumer needs. Take for example India, where both the once trillion-dollar companies had placed big bets. Not only did Amazon take down an already-established local rival Flipkart, it branched out to the rural areas that form a major part of the country.
Right from offering local languages to making the site accessible on low-end devices, Amazon is shaping its business to the needs of the consumers. And the efforts are paying off as well. According to the report by Barclays, Amazon is now India’s biggest online shopping platform in terms of gross merchandise value (GMV). For the fiscal year 2017-18, Amazon’s GMV stands at $7.5 billion, 20% higher than Flipkart with around $6.2 billion.
Apple, meanwhile, stays stubborn as ever. Even as Chinese rivals including Oppo, Xiaomi and Huawei bring out cheaper handsets at much lower prices, Apple has refused to tweak its profit margins. The results – Apple’s goal of lifting its India iPhone sales to $5 billion remains a far-fetched idea. In fiscal 2018, Apple has achieved only $1.8 billion in sales, much lower than its target.
According to Canalys, Apple’s market share in India dropped to 1% in 2018 from 2% a year ago.
Investment manager Bill Miller has predicted that Amazon’s top line would double in the next three years, a bold statement given the mammoth size of the company.
Things aren’t going to be smooth for the e-commerce giant though, as it will face more regulations pushed by the president himself in 2019. However, its fast expansion into newer horizons including media and health as well as an able Jeff Bezos at the top should see things through in the long run.
DISCLAIMER: The article does not necessarily imply the views of AlphaStreet, and contains opinions of the author alone.