The e-commerce marketplace keeps on growing as more people prefer the convenience of buying goods online. Amazon and Alibaba are notable players in the e-commerce field who operate via an online presence only. Each has unique features making them purely e-commerce businesses, but their respective business models are different. Amazon is a substantive retailer for new and used products while Alibaba acts as a middleman connecting buyers and sellers.
Amazon has been performing great and is regarded as the largest online retailer worldwide. However, recent data from financial analysts indicates that Alibaba is performing better than Amazon. In the previous year, Alibaba’s stock increased more than Amazon, and it’s market cap was within striking distance to surpass Amazon. That year, Alibaba recorded sales of more than $240 billion on its platform which was more than eBay and Amazon combined (Bloomberg, 2019). Amazon’s stock went up by only 30 percent while Alibaba’s nearly doubled. In addition to this, Alibaba stands to be the most shorted company globally by a mile. Its short positions total close to $23 billion while Amazon’s is close to $5 billion.
Both companies receive a high valuation from financial analysts. Alibaba, which is a Chinese tech giant has 47 brokers covering it, and none of them has a sell rating. Recent records from the analysts place the company’s mean target price at $197.51 which is almost 15 percent higher than where the company’s shares stand today. Amazon, on the other hand, has 44 analysts covering it of which only one has given the company a sell rating. The analysts have given Amazon a sell rating of about 17 percent from its mean target price of $1,150.46. Among the reasons investors prefer Alibaba as a proxy for China is because shorting Alibaba is considered a way to bet against China’s economic growth and broad stock markets.
The potential growth prospects for Amazon appear favorable despite several people in the market coming up with theories of what can go wrong with the company. The company has exceeded expectations as it invests in other businesses beyond e-commerce boosting its bottom line. Amazon might not have retained much earnings over the years, but has seen an increase in the scope of its business activities to a massive level. Since 2015, Amazon’s stock has seen a sharp increase from around $300 to its value today of $1,640 (Amazon, 2019). The company’s revenue has been increasing at a rate of 25.97% annually for the last three years.
Moreover, it has a 28% annual growth rate in net income and a 3% net margin. Based on these prospects, Amazon looks to be worth $6000 per share in 10 years (Amazon, 2019). Alibaba on the other hand also indicates favorable potential growth prospects as it is growing fast taking over the e-commerce industry. The company announced last year that its revenue reached $11.8 billion, an increase of close to 61% from their previous results (Bloomberg, 2019). In addition to this, the company expanded to offer services in the cloud computing business that generated revenues of about 5 billion Yuan in its first quarter. Despite both companies having a positive growth prospect, Amazon would be better to add to an investment portfolio since the company has seen a steady increase in the value of its shares year in year out. Investors, therefore, look to always gain if they choose to invest in the company.
Amazon has better quantitative and qualitative accounting metrics when compared to Alibaba. The company’s financial reports contain substantive details on its profit margins, debt ratios and earnings multiple and the value of its shares. Details on Amazon’s unquantifiable information including management expertise, the strength of development and research, labor relations and industry cycles are made available by the company as part of its accounting analysis (Amazon, 2019). Alibaba, on the other hand, does not have sufficient information relating to its accounting assessments. This is because the company went public recently as its initial public offer was on September 2014 (Bloomberg, 2019). However, analysis of its revenue, net income, and total assets is available.
Some non-accounting factors also indicate that Amazon looks to outperform Alibaba in terms of the company with more influence online. One of these factors is the venturing of both companies in offering cloud computing services (Bloomberg, 2019). Amazon is doing better despite the heavy competition from other tech giants specializing in the same such as Google. Another factor is the customer service of both companies. Amazon has an excellent customer service not only online in the simple purchasing process, but also in the delivery of the purchases to the customers, which arrive at the shortest possible time. These factors have proved to be a challenge for Alibaba.
Alibaba’s corporate governance includes several positions such as executive chairman and vice-chairman, CEO, a board of directors made up of top managers, directors and independent directors (Bloomberg, 2019). Some of these top managers are the CFO, CTO,CRO and a president of wholesale marketplaces. Amazon’s corporate governance consists of a board of directors, managers and an audit committee that oversees its board of directors. Both Amazon and Alibaba are socially responsible as stated in their CSR reports. Amazon does not tolerate any form of bribery by its employees, consultants, officers or any individual and company acting on their behalf. Also, the company is active in supporting the local community by not only creating jobs at its premises in Surrey but also by training future talent through its apprenticeship program for kids who are sixteen years or older (Amazon Filters, 2019). Alibaba provides responsible working conditions for all its workers and anyone undertaking work within its facilities. The company’s working wages and hours including overtime are fair and comply with the local laws and also those that relate to working time regulations and minimum wage. Amazon’s independence in governing managers makes the company better when compared to Alibaba. They are encouraged to speak their minds and if need be disagree with the standard ways of doing things. Amazon’s managers are expected to have a mindset of a business owner and to be obsessed with the customer experience.
Alibaba recently fully acquired the online ticketing platform Damai.cn, after their merger in 2014. The acquisition is part of the company’s entertainment strategy. Damai.cn will be a powerful platform for distributing media content and also grow their reach and engagement. Amazon, on the other hand, acquired Whole Foods Market last year at a whopping $13.7 billion, the company’s largest-ever acquisition ( CB Information Services, Inc, 2018). The acquisition is a reflection of the expanding ambition in the grocery and brick and mortar space. The acquisition gives the company a stronger position in the delivery of groceries that maximizes on Whole Foods’ loyal and large consumer base.
CB Information Services, Inc. (2018, June). Infographic: Amazon’s Biggest Acquisitions. Retrieved from CB Insights: https://www.cbinsights.com/research/amazon-biggest-acquisitions-infographic/
Amazon. (2019). Investor Relations. Retrieved from Amazon: https://ir.aboutamazon.com/corporate-governance
Amazon Filters. (2019). Corporate Social Responsibility. Retrieved from Amazon: https://www.amazonfilters.com/company-information/compliance-information/corporate-social-responsibility/
Bloomberg. (2019, March). Alibaba. Retrieved from Bloomberg: https://www.bloomberg.com/search?query=Alibaba