The businesses of Amazon and Alibaba are almost the same in all aspects, so the two are highly comparable. Just as Amazon’s stock price is not very good this year, and Alibaba has collapsed by more than 40% now, let us compare the two e-commerce giants in China and the United States.
Alibaba is a popular investment target for Chinese
For a long time, Alibaba (ticker: BABA) has been a favorite US stock investment target for investors on both sides of the Taiwan Strait. There are many reasons; for example, it is the largest market capitalization of Chinese companies listed on the US stock market. Compared with Americans, Chinese people are more familiar with it, and so on.
Main business comparison table
I once listed an Alibaba business table in Chapter 5, Section 5-1 of my book “The Rules of Super Growth Stocks Investing”, and now I am revising it as a direct comparison between Alibaba and Amazon.
|Segment||Alibaba BU and investment||Amazon BU, and investment|
|Fintech||Ant group provides payment, credit, BNPL;PayTM||Payment, credit, BNPL all provided by 3rd party|
|Logistic||CaiNiao||Fulfillment by Amazon(FBA)|
|Digital advertisement||Number 3 in North America, behind Alphabet and Meta||Number 1 in China, beat Baidu and Tencent|
|Life Service||Ele.Me, Koubei||None|
|C2C eCommerce||Taobao, XianYu, XunXi||Amazon 3rd party merchant|
|B2C eCommerce||Tmall||Amazon 1st merchant, Amazon 3rd party merchant|
|Cross border||AliExpress, Kaola, Lazada、Bukalapak||Amazon site around different countries|
|Physical retailer||Hema, RT-Mart, Intime Retail||Whole foods, Amazon Go, Amazon stores|
|Software||DingTalk, UC brower, YunOS||Amazon software marketplace|
|Entertainment||AliPicture, Youku, Xiami||Prime Video, Amazon Music|
|Helthcare||AliHealth (Hong Kong ticker: 0241)||Amazon Care, PillPack, Halo fitness|
|Media||SCMP, Weibo (ticker: WB), |
Bilibili (ticker: BILI)
|Hardware||AliGenie, Pingtouge, C-Sky||Echo, Ring smart home, Kindle reader, Fire TV, Graviton and Inferentia SoC, Fire tablet, wearables|
|EV||XPeng (ticker: XPEV), GaoDe Map, AutoNavi Ride-Hailing||Rivian (ticker: RIVN, Amazon account for 22% stake)|
Valuation comparison table
As far as the closing price of 11/23/2021 is concerned, the following is a comparison of the current valuations of the two:
|Market value (US$ in billion)||1,820||363.31|
|Year to day stock performance||+12.35%||-41.34%|
|2020 revenue (in US$ billion) and growth rate||386.064（37.62%）||109.468（+52.11%）|
|2020 net income (in US$ billion) and growth rate||21.331（+94.08%）||22.980（+8.92%）|
When Alibaba went public on the U.S. stock market in 2014, it was the largest listing in history. But since its listing, Alibaba has had ill-fated destinies. This is because it is a profitable company as soon as it goes public, which is rare in the technology industry. As far as e-commerce is concerned, it is a very rare case (large e-commerce is the only one). However, in the first two years of the beginning, American investors felt that the e-commerce peers in Europe and the United States had suffered substantial losses, and Alibaba could have made substantial profits (please note that it is net profit, not cash flow, or EBITDA). It is incredible and intuitive. There must be something strange. Therefore, at the beginning, many investors believed that the financial statements were fraudulent and did not believe in Alibaba’s financial reports, but none of them presented any evidence to prove that Alibaba’s financial reports were problematic. As a result, many investors shorted it for many years. As a result, the stock price has been depressed since inception.
Comparison of e-commerce BU
Don’t forget that Alibaba is listed in the United States, and its products are not visible in the United States, even if there is rapid business growth (before 2021, it will be more than 30% in almost every quarter, and it will continue for many years. It is the top ten listed company in the US stock market in terms of market capital. For companies, this is an amazing achievement), and it has not received the valuation recognition that investors should deserve. Unlike its peer Amazon’s achievements and achievements, Americans can feel it, so they will be quite sought after and enjoy the high valuation they deserve (please note that Amazon’s market value is less than that of Alibaba, at least following two or three years of its listing. Amazon’s revenue growth has not been better than that of Alibaba). As far as the e-commerce department is concerned, Amazon’s international department is almost hard to make a profit, and it has only made a surplus in recent years; while Alibaba’s e-commerce department not only has always had a positive EPS, but also has made huge profits.
For the market share and annual platform eCommerce GMV,
|Domestic eCommerce market||39% of North America eCommerce market share (eMarketer 2020 statistic)||53.3% of China eCommerce market share (eMarketer 2019 statistic)|
|Market share in opsite country||In 2010, the acquisition of Joyo had a market share of over 15%, in the end of 2019, accounted for less than 1%||In 2014, Alibaba bought the “11 Main” e-commerce platform to enter the U.S. market, but it was closed after only one year of launch|
|Annual GMV||2020 US$ 300B (UNCTAD statistic)||2020 GMV US$ 1T (UNCTAD statistic)|
Comparison of the two cloud departments
In 2020, Amazon’s AWS only generated 11.75% of the company’s revenue and contributed 67.82% of the company’s operating profit. In terms of net profit, AWS generated 63% of total net profit. It can be said that Amazon is using the cash flow generated by the AWS department to inject the development of other departments.
As for Alibaba’s cloud department, Aliyun’s revenue accounts for 10% of the company’s total revenue, and its EBIDTA is already positive in 2020, which means that the department is a department that has begun to make money for the company.
In 2020, Gartner report worldwide IaaS public cloud services market share report showed Amazon’s AWS, Microsoft Azure, Alibaba Aliyun, Alphabet’s GCP market share was 40.8%, 19.7%, 9.5%, 6.1% respectively.
Comparison of logistics BU
Jack Ma’s Alibaba is taking the asset-light route, so he does not want to raise a delivery army, which is understandable. In the early days when there was no Cainiao network, Alibaba relied on third-party logistics, that is, Alibaba itself was not responsible for delivery, which is why Alibaba’s net profit margin was higher. But now its logistics has become more complicated. The core logistics is still handled by Cainiao. By the way, the value of Cainiao only ranks behind Chinese unicorns such as Ant and Alibaba Cloud only, it probably ranked in the top ten in China, in short, very valuable. Cainiao promised to be delivered to any corner of the world within 72 hours, using its own planes. In China, with the exception of SF Express, the so-called four links and one delivery and other five major express companies, Alibaba is the majority shareholder of all these companies. Alibaba uses these affiliated companies to deliver goods, even if there is Cainiao, it still does this.
Amazon, like JD.com (ticker: JD), initially relied on its own logistics manpower for delivery. This department is called Fulfillment by Amazon (FBA). It is reasonable to say that Amazon is not reasonable to support so many people for delivery. Yes, this is the main reason why the operating profit of Amazon’s e-commerce department is only 1/3 of that of the entire company. The department is still losing money every now and then, which is exactly the reason. And so far, Amazon still relies on third-party delivery, but the proportion is declining year by year. FBA’s energy is amazing, accounting for 1/5 of the United States. It has now surpassed FedEx (ticker: FDX) to become the third largest package express company in the United States. It will soon surpass UPS (ticker: UPS) to become the second in early 2022, according to Amazon’s CEO of worldwide consumer, David Clark, will be second to the U.S. Postal Service. In 2019, Bank of America estimates that Amazon shipped 58% of its own packages. As of late August 2021, Amazon was delivering an estimated 66% of its own packages. What’s more amazing is its logistics efficiency. As I mentioned in Chapter 2 of my book “The Rules of Super Growth Stocks Investing”, section 2-3, Amazon’s average delivery time is 3.4 days, and the industry average is 5.6 days.
In the past few years, Amazon’s digital advertising in North America has accounted for about 6.8% of the market, second only to 38.2% of Alphabet, and 21.8% of Facebook, which is surprising.
In comparison, it is Alibaba’s digital advertising industry in China, which has a market share of about 25%, which has surprised more people.
In this year’s report, eMarketer pointed out that the global digital advertising market share is as follows:
- Alphabet 29%
- Facebook 24%
- Alibaba 9%
Amazon in China, Alibaba in the United States
Amazon has almost no visibility in China, whether it is e-commerce or cloud business. Amazon is not officially banned in China like Facebook (ticker: META) or Alphabet (ticker:s GOOGL and GOOG), but it will not be a popular e-commerce site for Chinese online buyers. To be fair, almost all foreign physical retailers cannot survive. Amazon is not the only one, and online e-commerce is not getting there. The main factor is that all foreign businesses, physical or online, without exception, are not satisfied. (This has nothing to do with politics), it can’t keep up with China’s local rivals, regardless of the breadth of service, efficiency, and localization. Even Carrefour, the largest in France, Metro from Germany, the largest retailer WalMart from the United States (ticker: WMT), Auchan from France, and RT-Mart from Taiwan; almost all of them are difficult to gain a foothold, even WalMart has been repeatedly reported to withdraw from China. In addition, Amazon’s cloud department, AWS, has worked hard for many years. Although its functions are not bad, it is hard to compete with its domestic counterparts in China. There are too many factors. At present, it mainly uses authorized third party s to operate.
This phenomenon is similar to that of Alibaba in the United States, and even worse than it is—because Alibaba Cloud is explicitly prohibited by the government in the United States. Chinese sellers will sell things on Amazon, and Americans will basically not want to use Alibaba for online shopping.
This is a very paradoxical phenomenon in the business world, because with the scale of these two companies and the services they provide, it is reasonable to have a considerable market share in the top two countries in the world, but this is not the case. It is mainly due to political factors and the consciousness of the people on both sides, which can almost be said to be the result of mutual resistance. It can only be said that it is an extremely special case.
If Alibaba is an American company
I personally have been thinking about a hypothetical question for a long time, but it is not without meaning. If Alibaba is an American company, or at least not a Chinese company, based on my personal experience and opinion, Alibaba’s market value should not stop here, it will be at least 3.0 times or 5.0 times the current market value. Why would I say that?
- As I said earlier, Alibaba seems to be a cursed company since it went public.
- Because it is the only Chinese company in the top ten market capitalizations of US stock market, it is regarded by Americans as the natural representative of Chinese companies.
- Since Trump, there has been a national movement in the United States against China.
- The chairman of the US Securities Regulatory Commission publicly on TV demanded US investors to avoid investing in Chinese stocks.
- The U.S. government banned Alibaba from operating in the U.S.
- At the end of October 2020, after the Ant listing case was suddenly cancelled, the Chinese government’s regulatory actions in various aspects that have lasted for more than a year have shown no signs of stopping, causing all Chinese concept stocks to fall sharply, and some fell by 80%.
None of these factors have anything to do with Alibaba’s business performance, but to a certain extent they have greatly suppressed Alibaba’s stock price. Therefore, it is not too much to say that if it is a US company, the stock price should be 3.0 to 5.0 times of what it is. Don’t forget that the businesses of Amazon and Alibaba are almost the same in all aspects, that is, the valuation of stock prices is comparable. In addition, Alibaba’s market share and annual platform e-commerce total transaction volume (GMV), these two most important performance index of online retailers, are significantly better than Amazon. But please take a look at the current stock prices and valuations of their two companies, do you think they are reasonable?
This is the difficulty of investing
After reading this article, I wrote earlier “The biggest risk to hold Chinese,taking Alibaba and Tencent as examples“, “Tencent vs. Alibaba“ . Normal investors must feel that Alibaba’s stock price valuation is unreasonable. The first few items listed in previous paragraph are investors’ psychological biases, which have nothing to do with facts or achievements. The latter is related to regulatory laws and regulations. These are areas beyond the control of listed companies. Of course, this is also where the stock market is complicated and investment is difficult.
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