Buy Alibaba Over Amazon???
We all know Amazon. Hate them or love them, they have become the Death Star. Due to the "Amazon Effect" they have forced all retailers to step up their own “omnichannel” channel or face extinction. Each year Amazon’s ownership of the e-commerce sales pie gets bigger and bigger and COVID-19 has only accelerated that dominance as more and more retailers like J. Crew and JC Penny are filing Chapter 12. Because Amazon controls by a huge market share internet sales in the US, while many, many companies are laying off Amazon just hired over 200,000 people in the last couple of months. The company has become the Goliath and in this case the David’s of the world are losing the battle. And this is why in this current environment, Amazon recently hit an all-time high with Wall Street targets being push up to $3000.
Now the one company that rarely gets discussed, but can more than certainly hold their own against Amazon is Alibaba…and at current valuations, might be the better buy at the moment.
Alibaba Group Holding Limited, through its subsidiaries, provides online and mobile commerce businesses in the People's Republic of China and internationally. Alibaba is the house (really the company) that Jack Ma built. A former English teacher, Jack Ma cofounded and Alibaba and eventually made Jack the richest man in China, as well as one of the wealthiest people in the world.
Jack also created Singles Day. Singles Day is very similar to Amazon Prime day. Introduced in 2015 in part to celebrate Amazon's 20th anniversary, the first Amazon Prime Day was a one day only retail holiday that sought to overtake Black Friday as the sales event of the year. This year Prime Day was a 48-hour event sold over 175 million items and raked in over $2 billion dollars.
Singles Day is like Amazon Prime day, but much, much larger. Last year Singles’ Day took in approximately $30 billion. To put that into perspective, Singles Day has surpassed the transaction volume of both Black Friday and Cyber Monday combined.
But Alibaba is so much more than Singles Day. Besides being the largest online wholesale market for, the company also owns, Taobao which is just like eBay. Then there is Tmall, that the company owns to which serves as a marketplace for major brands and retailers. While Amazon has AWS, Alibaba has Alibaba Cloud which is the largest cloud services provider in China, as well as one of the largest in the world. Oh and unlike Amazon, the company is also involved in digital payments and micro lending.
And the best part of all this is Alibaba is a better buy right now based on valuation.
Note the following:
• Amazon is dominant in the U.S. Alibaba and JD.com are big in China. Amazon’s revenue in the three months through December was $87.4 billion. For Alibaba it was $23.2 billion, and for JD.com it was $24.5 billion.
• Amazon stock is up about 27% year to date and JD.com stock is up about 24%. In contrast, Alibaba stock is down about 7%.
• From a fundamental perspective, it is best to look at the five-year price-to-earnings-to-growth (PEG) ratio. It is 0.94 for JD.com, 1.22 for Alibaba and 2.21 for Amazon. In plain English, this means that Amazon is expensive relative to its growth rate. In contrast, the valuation of Alibaba is reasonable.
• The forward price-to-earnings ratio (P/E) of JD.com is 35.84, while Alibaba is 23.81 and Amazon is 66.23.
Alibaba has earnings coming up on May 22. You may or may not see a short term pull back after earnings due to COVID-19 impact on the Chinese economy. But like Amazon which dominates e-commerce in the US, Alibaba dominates e-commerce in China with a population over 1 billion people with about 40% of the people reaching middle class status in the coming years. Alibaba remains a long term buy, but short term, price may pull back after earnings based on recent momentum.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
