Thursday, December 1 2022

E-commerce giants Amazon.com, Inc. (AMZN) and Alibaba Group Holding Limited (BABA) needs no introduction. AMZN retails consumer products and online subscriptions and operates Amazon Web Services (AWS), one of the largest cloud platforms in the digital computing space. It also offers personalized shopping services, web-based credit card payment, and dropshipping.

On the other hand, China-based BABA provides technology infrastructure and marketing reach for merchants, brands, retailers and other businesses to interact with their customers internationally. It operates through Chinese trade; International trade; Services to local consumers; Cainiao; Cloud; Digital Media and Entertainment; and innovation initiatives, and other segments.

The impact of high inflation and continued supply chain disruptions have negatively affected players in the e-commerce industry this year. However, a flat unemployment rate for four straight months, resilient consumer spending and improved delivery services should keep e-commerce businesses afloat on fundamentally healthy grounds.

Offering a personalized shopping experience to keep up with changing consumer tastes, multi-channel inventory management, shipment tracking and contactless delivery services are expected to help the industry grow. Moreover, the strengthening of the dollar should encourage domestic consumers to buy more foreign goods. The global B2C e-commerce market is expected to grow at a pace 8.1% CAGR to reach $8.02 trillion by 2030.

While BABA lost 3% over the past month, AMZN jumped 6.5%. But which stock is best positioned to survive the expected market volatility? Let’s find out.

Latest developments

On June 30, 2022, BABA’s Alibaba Cloud launched Energy Expert, a sustainability platform to help customers measure, analyze and manage carbon emissions from their business activities and products, and provide actionable insights and recommendations energy saving.

This is in line with BABA’s carbon neutral commitment to sharing its energy efficient technologies with its customers and business partners.

On July 12, 2022, AMZN’s Amazon Web Services, Inc. (AWS) launched Apache Spark and Hive, which help customers run analytics applications using open source big data frameworks, Amazon MSK to simplify real-time data ingestion and delivery, and Amazon Redshift to run high-performance data warehousing and analytics workloads without managing clusters.

These three new, simpler and more cost-effective serverless analytics offerings for Amazon EMR help customers analyze large amounts of data without configuring, scaling, or managing the underlying infrastructure. This should see strong demand in the coming months.

Recent financial results

For the fourth quarter of fiscal 2022 ended March 31, 2022, BABA’s revenue increased 8.9% year-on-year to $32.19 billion. The company’s operating income was $2.64 billion for the quarter, compared to a loss of $1.17 in the same period a year earlier.

While its non-GAAP net income fell 24.5% year-on-year to $3.12 billion, its non-GAAP earnings per ADS fell 23% to $1.25. The company had cash and cash equivalents of $6.01 billion as of March 31, 2022.

For its fiscal 2022 first quarter ended March 31, 2022, AMZN’s total net sales increased 7.3% year-over-year to $116.44 billion. The company’s operating profit was $3.37 billion, down 58.3% from the same period last year.

Its net loss was $3.84 billion, compared to a net profit of $8.11 billion in the same period a year earlier. AMZN’s EPS was $7.56, down from $15.79 a year ago. As of March 31, 2022, the company had $36.39 billion in cash and cash equivalents.

Past and expected financial performance

Over the past three years, BABA’s revenues, EBITDA and tangible book value grew at CAGRs of 31.3%, 10.9% and 59.5%, respectively.

Analysts expect BABA’s EPS to decline 5.2% in fiscal 2022, ending December 31, 2022, and to increase 20.1% in fiscal 2023. The figure The company’s revenue is expected to grow 7.3% year-over-year in fiscal 2022 and 13% in fiscal 2023. Its EPS is expected to grow 0.1% year over year. year over the next five years.

Over the past three years, AMZN’s revenue, EBITDA and tangible book value have grown at CAGRs of 25.5%, 21% and 50%, respectively.

AMZN’s EPS is expected to decline 78.4% year-over-year in fiscal 2023, ending March 31, 2023, and 277.1% in fiscal 2023. the company is expected to grow 11.3% year-over-year in fiscal 2022 and 16.5% in fiscal 2023. Its EPS is expected to grow at a rate of 40.5% annually in the next five years.

Evaluation

In terms of EV/futures, AMZN is currently trading at 2.30x, which is 24.3% higher than BABA’s 1.85x. In terms of non-GAAP forward C/E, BABA’s 14x compares to AMZN’s 184.13x.

Profitability

AMZN’s revenue over the last 12 months is 3.6 times that of BABA. Moreover, AMZN is more profitable, with 42.1% Gross margin against 36.8% for AMZN.

Additionally, AMZN’s ROE and ROTC of 18.1% and 4.4% compare to AMZN’s 5.1% and 4.7%, respectively.

POWR Rankings

While BABA has an overall C rating, which translates to Neutral in our exclusive ownership POWR Rankings system, AMZN has an overall rating of D, which is equivalent to Sell. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.

Both BABA and AMZN have a C rating for Momentum, which matches their mixed-price performance over the past year.

BABA has a C rating for value, in line with its slightly above industry valuation ratios. BABA’s non-GAAP 14x PER is 27.2% above the 11x industry average. AMZN’s D rating for value is in line with its overvaluation. AMZN’s non-GAAP forward P/E of 184.13x is 1573.4% above the industry average of 11x.

Of the 43 shares listed F China group, BABA is ranked #21.

AMZN is ranked No. 38 out of 66 F-listed stocks the Internet industry.

Beyond what we stated above, our POWR rating system rated BABA and AMZN for stability, growth, sentiment and quality. Get all BABA ratings here. Also, Click here to see additional POWR ratings for AMZN.

The winner

Regulatory crackdown has slowed BABA’s trading pace, causing him to cut a third of the staff of its internal deals team. Additionally, China’s COVID restrictions weighed heavily on its growth.

On the other hand, the extremely high valuation of AMZN and its decision to reduce the number of products marketed under its own brand are worrying investors.

Additionally, the impact of aggressive interest rate hikes and the bleak outlook for BABA and AMZN mean that neither stock is currently a good investment. Although it is best to avoid AMZN now due to its overvaluation, it might be wise to wait for a better entry point in BABA.

Our research shows that the odds of success increase if one invests in stocks with an overall POWR rating of Buy or Strong Buy. Click here to access the highest rated stocks in the internet industry and here for those in Chinese industry.


Shares of BABA rose $0.13 (+0.13%) in after-hours trading on Friday. Year-to-date, BABA is down -13.76%, compared to a -18.31% rise in the benchmark S&P 500 over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. After…

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