Alibaba’s

Amazon vs Alibaba – Who is Winning?

Amazon and Alibaba’s the two big giants of the ecommerce industry. Are competing against each other to win the crown for the leader of the global ecommerce market. Amazon laid the cornerstone in 1995. As an online bookstore whereas Alibaba started off its venture in 1999, nearly five years after Amazon’s founding.

Now that both the companies have established a strong brand presence in their home territories. There is tough competition between these. Two tech giants as they are looking for new markets to expand in.

By raising an IPO value of $21.8 billion by the end of 2014. Alibaba’s has grown on to become one of the largest and most valuable ecommerce companies in the world. In fact, on the first day of trading, Alibaba eclipsed both Amazon and eBay.

Features in common

The two ecommerce titans have many features in common. A major portion of Amazon’s revenue comes from electronic products. And merchandise and digital media content (including Amazon Prime. An annual fee-based subscription that streams video content and other trending digital services).

On the other hand, Alibaba’s operates on a number of ecommerce sites aimed at different types of sellers. Alibaba’s Taobao is one of Alibaba group’s most profitable marketplaces and is responsible for more than 80% of Alibaba’s sales. Even though the mode of operation of both companies looks similar at first glance, they are quite different.

Alibaba’s

Alibaba isn’t involved in direct sales and does not own any warehouses like Amazon. They simply help small businesses and branded manufacturers reach consumers. Amazon operates on a managed online platform that looks similar to a traditional store but stays online. It exercises control over customer experience.

Alibaba looks profitable, but the company is facing strong barriers in finding new customers and adapting to new economies. Amazon has already recognised the fact that to compete with Alibaba in China. They need to invest a huge amount of money to increase sales and has pivoted. Away from China to focus on other prominent regions.

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Alibaba: A Brief History

Remember in 1999 when the whole world seemed to be in a tizzy about Y2K? Well, a group of 18 friends and students, led by Jack Ma, ignored the hype and instead founded Alibaba.com. It originally started as a China-based B2B marketplace. That catered to small and big businesses exporting Chinese products globally. Becoming profitable just 3 years after being founded.

Since then, Alibaba has steadily and widely grown. Although Jack Ma stepped down as the chairman. He had built a very solid foundation. With Alibabas current market value at more than a quarter-trillion USD.

Amazon: A Brief History

Whether you view Jeff Bezos as a mastermind or villain, there’s no denying he’s built up one of the largest and most successful ecommerce marketplaces in the whole world. He got his start 5 years earlier than Jack Ma did when he quit his job as a VP at a Wall Street firm and started drawing up plans for what would eventually be called Amazon.

Although Amazon originally started as an online bookstore, it rapidly expanded to include just about every category imaginable. But Bezos didnt stop there, also acquiring Twitch, Whole Foods and more than 40 other subsidiaries, with a value of more than $500 billion all in all.

Similarities Between Amazon and Alibaba

On the surface, the two seem to share quite a bit in common. They’re two ecommerce behemoths who enjoy the luxury of very few competitors. While their market shares may be different percentages (Amazon owns 39% of all US ecommerce sales, while Alibaba owns 58.2% of all retail ecommerce shares in China), they each dominate their respective countries in which they began.

Both also have proprietary payment systems: Amazon has Amazon Pay, which allows users to purchase items on non-Amazon sites with their Amazon accounts. Alibaba has done the same with Alipay, with more than 700 million annual active users employing its mobile and online payment system.

However, that’s pretty much where the similarities end. Amazon and Alibaba have very different business models from each other, so let’s jump into what those are so you can see for yourself which would suit you better as an online seller.

Alibaba’s

Difference 1: Target Audience

Who each online marketplace targets is probably the biggest difference between Amazon and Alibaba. Amazon sells directly to consumers for both new and used items, while Alibaba is a middleman between buyers and sellers.

That’s not to say that Alibaba doesn’t have an Amazon-style offering, as they have both AliExpress and Taobao. The latter, in particular, is their largest and most profitable site, with almost seven million active sellers stocking items on the fee-free marketplace (neither buyers nor sellers have to pay fees) that contribute more than three-quarters of Alibaba’s sales. But their business model is primarily B2B, while Amazon’s is B2C.

Difference 2: Fees

This is another key area where you’ll notice major differences between the two marketplaces. It’s well known that Amazon charges sellers various fees in exchange for being able to list products, whether it’s through the monthly (professional) seller plan, Amazon seller fees, Prime memberships, or many other ways.

Alibaba, on the other hand, doesn’t have quite a tight hold on charging fees, as evidenced by their fee-free Taobao site. It’s not a totally free experience, though, as they generate revenue from sellers paying to rank higher on Taobao’s internal search. Amazon doesn’t charge for this, with SEO and metrics being the top ways sellers rise in search results.

Difference 3: Revenue Sources

Lastly, we come to the third major difference between the two marketplaces: the sources where each company derives its revenue from.

Amazon has a combination of online and offline stores (see: Whole Foods), with their revenue sources coming from big-name brands, individual sellers, subscription services and advertising. They’re also trying to establish dominance in online streaming services — so is Alibaba — but they haven’t yet made the kind of profits that can count as a major source of revenue.

Alibaba has carved out its own niche by getting their revenue from core commerce, digital media, entertainment and funding innovation. Although they, too, are diving into the online streaming world, like Amazon, they haven’t yet built a strong enough foundation to bring in big profits. But we’d bet 10 to one that it’s only a matter of time before they do.

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How Do The Core Businesses For Amazon And Alibaba Compare?

Both Amazon and Alibaba were growing fast going into the coronavirus crisis, and the lockdown in various parts of the world will only make these companies stronger as more people adopt and increase amounts of online shopping. Let’s look at the core business prospects a bit more closely. Alibaba is a marketplace, which does not own the inventory of the merchandise sold, and merely connects buyers and sellers together. On the other hand, Amazon is a re-seller that owns the inventory and supply chain of its merchandise and sells directly to the customer. Consequently, Alibaba operates a business with much less overhead than Amazon which explains the wide difference in both the company’s margins. Amazon’s profit margin (net income as a percentage of sales) is lower at 4.1% (as of 2019) versus 23.3% (fiscal 2019 ending March) for Alibaba.

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We believe Alibaba is likely to outperform Amazon, not in the near-term, but in the medium- to long-run. We base this thinking on Alibaba’s core e-commerce operations which have largely higher margins, notably lighter supporting infrastructure, and are less capital intensive. In fact, Alibaba is able to put up more products than Amazon for its consumers, due to its business model.

Also, Alibaba generates around 86% of total revenues from its core e-commerce global operations, while this figure is lower for Amazon (diversified revenue stream), which makes 71% from its online retail. Since Alibaba primarily relies on e-commerce operations, it still has a lot of room to grow in other non-core businesses, including Cloud and Digital Entertainment.

Trends in Stock Price over the years: From 2015-2019 Amazon.com stock has grown at 1.1x the rate of Alibaba Group

  • Amazon.com stock went from $676 at the end of 2015 to $1,848 at the end of 2019, representing a change of 173%.
  • During the same time period, the Alibaba Group went from $81 to $212 representing a change of 162%.

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TREFIS

Review of Fundamentals

  • Trends in P/E Multiple over the years: Based on trailing 2019 P/E ratios, AMZN stock looks attractive compared to prior years and expensive compared to BABA.
  • Historical Revenue Growth: Amazon.com 2014-19 annualized revenue growth of 27% is 0.6x that of the 2014-19 Alibaba’s annualized revenue growth rate of 46%.
  • Historical EPS Growth: Amazon.com 2014-19 annualized EPS growth of 107% is 3.2x that of the 2014-19 Alibaba annualized EPS growth rate of 34%.
  • The Chinese Giant and the American Colossus find themselves at loggerheads, each determined to drive forward its own vision: a ‘pure’ marketplace on one hand; ‘retailer logic’ on the other.Alibaba is often mistakenly thought of as ‘the Chinese Amazon’. It’s easy to see how people arrive at this description: after all, the two companies each dominate their respective primary markets. A quick look at the numbers for 2016 shows us.
  • That Amazon turned over $136bn, growing 27% on the year before; Alibaba is still much smaller, turning over $23bn – but it’s also growing twice as fast, earning 56% more in revenues in 2016 than in 2015. In that year, Amazon had 310m customers to Alibaba’s 454m – most of whom are in China.

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