The days of bricks and mortar stores have seemingly come to an end. Online retailers dominate the consumer and supplier experience, with Jeff Bezos and Jack Ma among the world’s richest people. Their fortunes are built on businesses that connect two very different types of transactions. Amazon (NASDAQ:AMZN) focuses on connecting the end consumer to the retail supplier, mainly in the United States. Alibaba (NYSE:BABA) focuses on connecting a large supplier base to the next business in the supply chain on a global scale. Each behemoth drives considerable global business in their own way. But, which would you rather own?
Fundamental Analysis: Alibaba Holds The Top Spot
Investors gave Amazon wide leeway in running its business as the company created its empire over the past two decades without showing much profit. However, its web service business arm began boosting the bottom line in recent years. Nonetheless, its P/E ratio sits at exorbitantly high numbers, with its price to cash flow sitting at a whopping 207.85x. Compared to Alibaba’s P/E of 46.7x and P/CF of 30.52, Alibaba appears to be a steal. Further, the basic ratios of ROA, ROI and ROE all favor BABA with values of 10.72, 19.49, and 14.71 vs Amazon’s 3.8, 12.65, and 12.52 respectively.
Proponents of Amazon would say looking at these fundamentals alone could be misleading. Part of what makes Amazon the powerhouse it does is the constant investment it pours back into its own operations. Consequently, their operating costs sit much higher than normal because they are constantly adding to their own operations. Nonetheless, Alibaba dominates the marketplace with net cash from operations at a whopping $80B+ vs Amazon’s $18.4B. Yet, there is one significant difference; revenue. Amazon holds the top spot with revenues of nearly $180B while Alibaba comes in at $158B. However, Alibaba was at 1/3 that 3 years ago, while Amazon was at a little more than half. Clearly, the growth trajectory favors Alibaba.
Technical Analysis: Amazon Appears Better
On a technical basis across all the indicators, both stocks are evenly matched. Amazon has had more momentum of late, sitting comfortably above its weekly moving averages, with the spacing on the weekly 20 and 50 period moving averages growing. On the other hand, Alibaba just came back into its 20 week moving average and is also headed towards its 200 day moving average. Interestingly, neither has much more short interest in the stock than the other, leading to the conclusion that investors have come to some relative ease with these stocks.
Remarkably, while Amazon has been in a perpetual uptrend, Alibaba has had a wide-ranging consolidation. Though it briefly took out its all-time highs, Alibaba hasn’t been as forceful and consistent as Amazon’s stock has been. Further, the stock has begun to show signs of weakness as it breaks upper level trend lines and support, whereas Amazon shows no signs of slowing yet.
Institutional & Overall Sentiment: Draw
While Blackrock maintains high holdings in both companies, both have a decent mix of private and public capital holders. However, over the last quarter the top 10 institutional investors had net sales in shares, while they had a small, but noticeable net purchases in Alibaba. Some of this may be driven by the higher valuation in Amazon, with investors taking something off the table as the prices climb higher and higher.
Both have seen their names in the news as of late, with Amazon being lit up by the Trump administration for not paying state and local taxes. As it turns out, while the company itself predominately does pay these taxes, the 3rd party vendors on its site may not. Consequently, the question remains as to whether their transactional side of the business for vendors will remain intact. Alibaba hit the wire as the Trump administration pushed aggressively on tariffs around the globe. Because of the wide and diverse nature of Alibaba’s supplier base, it remains unclear how much an impact these policies will have on their bottom line. Their remarkable growth rate may mask a fair amount of their underlying problems.
Conclusion: Alibaba Has a Slight Edge
Neither stock offers an attractive value at current price levels. While they are both growing at exponential rates, Alibaba appears to have the upper hand both in generating profits as well as total growth. In large part, their business model requires less infrastructure, as well as has a larger global presence. However, the company still sits under the Chinese government, which has the authority to nationalize companies at whim. Thus, there exists existential risk relative to Alibaba. In either case, buying into either company now would be relying on exceptionally high growth rates with little room for error. If an investor wanted to participate in the stock they’d be better waiting on a significant pullback in the price before jumping in.
Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article. The author is not receiving compensation for this article. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.
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