Why Google and Amazon Rise as Stock Market Falters

By Douglas A. McIntyre Published Oct 1, 6:40AM EDT

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The S&P 500 dropped nearly 8% in the most recent quarter. Old world Internet stocks Amazon.com Inc. (NASDAQ: AMZN) and Google Inc. (NASDAQ: GOOGL) rallied nearly 17%. In a market supposedly dominated by Web 2.0 companies, these multi-decades-old early Internet companies outperformed the balance of the market substantially. The primary reason is that no other companies have been able to enter their businesses successfully, and each has successfully entered new and rapidly growing sectors.

Google’s share of the search engine industry in the United States is two-thirds, and in Europe it is greater. European Commission officials have begun an attempt to clip Google’s presence there, but the outcome of the battle may be years away. Google owns the smartphone search business, and its Android operating system is the preferred one for portable and smartphone devices. Its dominate video site, YouTube, is large enough to be broken out in Google’s financial reports. Based on comScore data, no other video site comes close to matching it in terms of views, or the time spent on all video sites.

Google’s revenue is at a $75 billion level. Its operating income is nearly $20 billion. The company has almost $70 billion in cash.

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Amazon is as dominant in e-commerce as Google is in search and operating systems. Its annual revenue is about $100 billion. CEO and founder Jeff Bezos has made it clear that, for the time being, his goal is not to show large profits but to increasingly dominate his industry, which among other things is to steal market share from the largest brick-and-mortar retailers.

Longer term, Amazon has the ability to be one of the largest presences in the video-on-demand streaming business, which has caused people to cut their satellite and cable television subscriptions and watch content via broadband. Amazon has bundled its video offer into what it calls Prime, which also gives customers free shipping on many products sold on Amazon. If Amazon can join Apple Inc. (NASDAQ: AAPL) and Netflix Inc. (NASDAQ: NFLX) as the major companies in this sector, it will become one of the largest “TV channels” in America.

Amazon has another, rarely discussed division, which Bezos believes will be larger than the whole company at some point. Its Amazon Web Services has become one of the largest cloud businesses in the United States. As use of the cloud expands, Amazon’s revenue in this division should reach tens of billions of dollars.

Both Amazon and Google remain successful in their original businesses. But what Wall Street sees in the companies is their newer products, which should grow rapidly into huge operations. For Google, that is Android, and for Amazon it is the cloud. Google and Amazon have such strong presences in these emerging sectors that their stocks could outperform a dangerous stock market for a long time.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.