David and Goliath, Batman and the Jocker and Harry Potter and Voldemort. To the list of rivals that have gone down in history, we must add two more names: Amazon and Alibaba. The two e-commerce giants have been fighting for years to be crowned the main online sales group. There are many differences that separate them, but also many similarities that bring them closer together.
The Chinese company has been in the eye of the hurricane for weeks and not exactly because of positive news. Its shares plummet more than 12% in the month of August alone , declines that it managed to smooth on Tuesday after advancing more than 6%, taking the Nasdaq above 15,000 points for the first time in history. If this rise is ignored, the falls were 17.5%. The indentation in the parquet is such that its price is at levels that it has not seen since mid-2019. Only in the month of July it was placed, along with Tencent, among the 10 most bearish values on the New York stock market.
In the same period, Amazon shares barely show large movements and are practically at the same level at which they started the month. The situation of its Chinese namesake is due in large part to the regulations that the country is imposing in recent weeks, especially those companies that are listed in the United States. The Asian powerhouse has been facing the big technology firms for months now, which in recent years have been accumulating more and more power as their business has grown exponentially.
Amazon or Alibaba?
So which is better, Amazon or Alibaba? There is no crystal ball that answers this question, but the reality is that, with the data in hand, buying Alibaba shares is twice as cheap as buying Amazon shares. The Asian company trades at 26.62 times per PER (times that the profit is reflected in the share price), while the North American company does so at 26.62 times.
Beyond the falls that have rocked Alibaba in recent weeks, the reality is that, by and large, it is a cheaper company per PER than its rival. At the beginning of the year, when the obstacles that China had prepared were still not in sight, it was trading about 17 times per PER, practically the same as now, while Amazon was trading 40 times.
Translation: at the beginning of the year, Amazon was buying twice as much as its rival. If we go back to October 2020, with Alibaba stock at all-time highs (topping $ 304), it was trading 24 times per PER, a far cry from Amazon’s levels.
Everything points to the fact that Alibaba’s situation on the floor is temporary. The market consensus is clear about it and believes that it is a good time to buy their shares. In fact, they predict that for the next 12 months there will be increases close to 26% , reaching 271.25 dollars per title. If the analysts’ estimates are correct, its journey in the stock market will be very similar to that of Amazon. On this occasion, the consensus of analysts that follows it in Bloomberg predicts increases of 26%.
He also sees increases in the short term for Alibaba Carlos Almarza, Ecotrader technical analyst. “Alibaba has reached the $ 152 zone, as we had warned in previous sessions. Buyer interest has appeared from that fundamental support zone and given the punishment suffered in recent months it could be enough to create a sustainable and so that it can resume its trend, “he explains.
“In the short term it could go in the first instance towards 182 and 191 dollars, which is the minimum that we must demand that it exceed to consider that its bullish resumption takes shape. With a stop below yesterday’s lows, positions could be taken”, concludes the expert.
For these bullish forecasts to be fulfilled, the Asian firm must overcome several risks that it finds on its horizon. Deutsche Bank mentions five in particular: “Regulatory uncertainties, intensifying competition from global and local e-commerce platforms, inability to successfully integrate invested entities into the Alibaba ecosystem, inability to expand or monetize the business of AliCloud and the volatility of the exchange rate coupled with the macroeconomic slowdown “.
If the increases will shape the future of Alibaba, they will do the same with Amazon. “It develops a lateral movement, within its impeccable upward trend since practically last September, so it does not present overbought and we understand that it is a matter of time before it resumes the absolute free rise, which is the most bullish technical situation that exists. In the short term, buyer interest has appeared from the support zone of $ 3,170 / 3,125, but it is still not enough to consider that we are facing the resumption of the trend “, details Almarza.
“The downward gap opened from $ 3,600 has yet to be closed and for the moment, eventual rebounds we consider to be part of a more complex consolidation. In any case, as long as the intermediate support of $ 3,125 does not yield, its options will remain intact. Below , in the worst case scenario, it could go towards 2,880 / 2,830 dollars , the base of the consolidation that it develops, which would offer a magnificent opportunity to buy or increase exposure “, the expert explains.
The Covid-19 pandemic has put electronic commerce at the forefront, with the great beneficiaries being those who base their business on it. Something that Amazon and Alibaba know a lot about. The first has registered record income and benefits throughout 2020. In the midst of a pandemic, it managed to close the year by doubling its profit until it declared profits of $ 21,331 million . In that same period, it had a turnover of 386,064 million, 38% more than the same period of the previous year, while shareholders pocketed $ 42.64 per share, compared to 23.46 in 2019.
Despite the fact that the stratospheric growth of recent months is going to relax in 2021, everything indicates that it will continue to set records quarter after quarter. The estimates of the analysts who follow it in FactSet suggest that it will close the year with a net profit of 27,191 million dollars, 27.5% more than in 2020 (see graph). Looking ahead to 2022, it is expected to exceed 35.2 billion and that by 2023 it will practically double the profits of 2021 by declaring a net profit of close to 50 billion.
Alibaba’s case is special. Like Amazon, it closed its fiscal year with profits of 23,039 million dollars (149,263 million yuan), an increase of 70.4% compared to its previous fiscal year. Regarding its income, they increased by 35.3%, to 509,711 million yuan (78,677 million dollars). The problems came in its first fiscal quarter after declaring losses of more than 1.17 billion dollars, the first red numbers since its IPO in September 2014 .
These losses have nothing to do with the coronavirus crisis. They are due to the historic fine that he had to face in April of this year. Chinese regulatory authorities sanctioned the e-commerce giant 18 billion yuan ($ 2.75 billion) for violating antitrust rules and abusing its market position. This is the largest antitrust sanction ever imposed in China in the context of the intense control undertaken by this country in recent months on large technology companies. The fine accounted for about 4% of Alibaba’s total revenue in 2019.
Market estimates for Alibaba for 2022 speak of a net profit of close to $ 27 billion. If these data are finally fulfilled, it would be the first time in history that Amazon surpasses the profits of its Chinese rival (see graph).
A surprise that the market does not see anything crazy. “We believe Amazon is well positioned as the market leader in e-commerce and in the public cloud, where secular changes are still early: US e-commerce accounts for 20% of adjusted retail sales, and we estimate 15% of the workloads are in the cloud nowadays “, they indicate from JP Morgan.
The finance company highlights that the company “is beginning to show more benefits, with its high growth in advertising revenue streams and AWS [Amazon’s cloud services] also more profitable.”
JP Morgan also has positive words for Alibaba, in fact, it highlights that beyond the current context it has good fundamentals to trust its strength for the coming months.