Amazon.com and Microsoft are the leading giants in the market that do not have any competitors that can be compared feature by feature for investment. Amazon, which is a massive e-commerce company, has a total market value of whopping $475 billion. Now Microsoft stands a little high in comparison at a value of $546 billion in the market. Both the companies have a different field of operation, and for investors puzzled about investment option, you need to keep in mind three important factors like financial status, valuation, and competitive advantage.
Before you go on investing in either of the company, make sure you analyze the future financial strength of the company. You wouldn’t want to invest in something that is going to melt in the upcoming years due to lack of finance. When you compare the data of both the company’s financial stack up, you can see the free cash flow of Amazon stands at $16.8 billion whereas the same for Microsoft is $36.9 billion. Although Microsoft is at a higher debt than Amazon, the net income along with the free cash flow is capable enough to tackle the debts. Microsoft reflects a large amount of cash flow as compared to Amazon. This means when it comes to the financial status, Microsoft is the clear winner of the two.
The current scenario reflected by Amazon is almost similar to Microsoft when it comes to valuation. Although Amazon is a rapidly growing company with a higher forward P/E, Microsoft is rather following a conservative, slow but planned approach for prospects. If you are looking to invest in higher growth, Amazon is the perfect choice for the same. However, for the investors that are looking for a long-term stable investment, Microsoft has the perfect base for the same. So, when you look at the valuation factor, both the companies follow a different approach and thus this factor leads to a tie between the two.
Microsoft possessed the top rank in the personal computer market for more than two decades, but the recent rise in Apple computers & mobiles, and Android systems have led to a decrease in the popularity of the company. On the other hand, Amazon is growing stronger every day. The scale of Amazon’s extent has created a scenario which makes it highly unlikely for rivals to overtake this e-commerce giant. Amazon and Microsoft function on two different markets but the only area they compete on a direct basis is the “Cloud-Computing” feature. Here Amazon AWS occupies the market with a total of 35% share which when compared to Microsoft Azure’s 15%, makes Amazon the obvious winner. However, when you look through the start, Microsoft had a smaller base as compared to Amazon and is also rising fast. Microsoft is now trying to bring down Amazon’s growth by motivating customers to shift to its cloud service. This isn’t enough to bring down the competitive advantage of Amazon over the software giant, so for this factor, Amazon has a higher edge.
The difference in target market between the two companies makes it difficult to come to a final winner. For the ones requiring a steady growth, Microsoft is the best investment option, whereas, for the investors looking for higher growth with risk and volatility, Amazon is highly preferable.