GameStop (NYSE: GME) and AMC Entertainment Holdings (NYSE: AMC) has received a lot of attention from investors lately because they were part of an epic short print. Shares of both AMC and GameStop are experiencing extreme volatility as traders, speculators and short sellers collide in the market.
However, investors do not have to worry about the incident taking place. Instead of participating in the speculative madness in shares of AMC and GameStop, you buy shares of Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) will yield better returns in the long run.
GameStop and AMC stocks are experiencing heavy volatility. Image Source: Getty Images.
1. Netflix
Netflix has already quickly acquired customers and the pandemic has put fuel in the fire. Millions of people spend far more time at home than they were used to, which has led to a significant increase in the demand for home entertainment. As a result, Netflix is delivering and reaping the benefits.
On January 19, Netflix reported that it had 203 million paying subscribers, up from 167 million the previous year. The entertainment giant achieved an average revenue per user of $ 11.02. At an annual rate, it generates nearly $ 27 billion in revenue. The large size of its membership base enables Netflix to spend a lot of money and further differentiate it from competitors. In turn, new content should attract new members, while current members should also be on board. The positive feedback loop will be hard to stop, which will provide a sustainable benefit for shareholders.
In addition, the scale he has achieved ensures that he does not have to rely on external financing in future, which makes it a less risky share.
Image Source: Netflix.
2. Amazon
Amazon has just reported its first revenue quarter of $ 100 billion with a fan of expectations, and there are no signs that it is slowing down. The coronavirus pandemic has spurred millions of people to increase the amount of shopping online. This benefited Amazon as it was ready to deliver products ranging from toothbrushes to laptops. Undoubtedly, some of the new shopping will continue long after the pandemic.
Amazon’s fast shipping, the best customer service and the great availability of products mean that it’s hard to find a better alternative e-commerce service. The value proposition gets even better for Prime members, who get free two-day shipping and access to Prime Video – all for less than the price of a Netflix subscription. No wonder Amazon has signed up at least 150 million members as of January 2020.
Although the Seattle business’s e-commerce operations are increasing revenue, the massive profit growth is being driven by the Amazon Web Services (AWS) segment. In the last 12 months, operating cash flow increased by 72% to $ 66.1 billion. AWS, which offers cloud computing, storage and database services, accounted for 59% of operating profit in 2020 while accounting for only 12% of sales.
All in all, Amazon is known for making huge investments to expand its capabilities and focus on consumer experience, rather than competing. These investments are bearing fruit. What’s more, they seem to be expanding. The gross profit margin has more than doubled in the past decade from 12.9% to 26.6%.
What it can mean for investors
The furious buying and selling of GameStop and AMC shares is definitely exciting and provides good news. However, long-term investors are not into the excitement or the excitement of making a quick profit. Amazon and Netflix are clearly better companies that will deliver a better return for the savvy investor. Each has more than 150 million loyal customers and is growing and continues to deliver products and services that make them return. And while both companies have performed excellently since July, their shares have been trading at valuations at or below July levels. For these reasons, it is better to forget GameStop and AMC and buy Amazon and Netflix instead.