The ever-increasing penetration of the internet and the adoption of smartphones are bolstering the growth of e-commerce.
According to a Grand View Research report, the e-commerce market was worth $9.1 trillion in 2019 and is expected to grow at a compounded annual growth rate (CAGR) of 14.7% between 2020 and 2027.
Using the TipRanks Stock Comparison tool, let us compare two e-commerce companies, Alibaba and Amazon, and see how Wall Street analysts feel about these stocks.
Amazon is an e-commerce retailer that serves consumers through online and physical stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablet and Fire TV. It fulfills customer orders through its fulfilment networks in North America and in international markets.
AMZN enables sellers to grow their businesses by selling their products in its stores and fulfilling their orders through Amazon. Furthermore, the company’s Amazon Web Services (AWS) offers a broad portfolio of on-demand technology services, including computing, database, storage and analytics and machine learning.
Last week, the company gave details of its Prime Day event that occurred on June 21 and 22 of this year. AMZN said that in the two-week period leading up to Prime Day, customers spent $1.9 billion on products from small businesses, representing a 100% year-over-year rise compared to the promotion for Prime Day in October of last year. The spend took place as part of its “Spend $10, Get $10” promotion offer.
AMZN also stated that on Prime Day, around 250 million items were purchased by Prime members on a global basis.
However, according to retail insights gathered by Salesforce (CRM) using its proprietary Shopping Index data, online sales in the U.S. were relatively flat over last year’s Prime Day. Sales showed less than 1% growth and total spend for online sales globally declined by 1%.
Following the Prime Day news and data from Salesforce, Robert W. Baird analyst Colin Sebastian reiterated a Buy and a price target of $4,000 (16.3% upside) on the stock.
Sebastian said in a research note to investors that while for some observers the data could be slightly disappointing, “it’s essentially in line with our forecast for ‘slightly lower sales.’ Our assumption was based largely on the limited physical store openings last fall, as well as the proximity of October Prime Days to the holiday shopping season.”
The analyst continues to believe that “Q2 online sales growth is tracking fairly close to our ‘base case’ scenario, and that Amazon should also report a good quarter. Looking ahead, we continue to expect Amazon will host another round of Prime Days later this year.”
Amazon had net sales of $108.5 billion in Q1, a jump of 44% year-over-year, and reported earnings of $15.79 per diluted share versus $5.01 per diluted share in the same period of last year. (See Amazon stock chart on TipRanks)
In Q2, the company expects to generate net sales between $110 billion and $116 billion, and anticipates operating income to range from $4.5 billion to $8 billion. The operating income outlook also assumes $1.5 billion of costs related to the COVID-19 pandemic.
Analyst Sebastian had stated in another research report, following the Q1 results, that AMZN is benefitting from multiple tailwinds, including growth in AWS and advertising, Prime memberships and its seller services that include last mile delivery services.
The analyst views Amazon’s strong focus on customer experience, through a broad selection of products, technology innovation, and low prices, as giving it a competitive edge.
Consensus among analysts on Wall Street is a Strong Buy based on 31 Buys. The average Amazon price target of $4,309.33 implies approximately 25.3% upside potential to current levels.
Alibaba (BABA)
Alibaba Group Holding Ltd. is a Chinese e-commerce giant, founded by Jack Ma. The company follows a market segmentation strategy of various online marketplaces catering to different market segments. For example, the company’s TaoBao is a marketplace that targets individuals and small businesses, while TMall is an online marketplace for premium products.
BABA’s Ali Express targets global customers who can buy directly from manufacturers and distributors located not only in China but also internationally, while Freshippo is the company’s grocery retail chain.
Alibaba also operates a logistics network, Cainiao Network, and has a cloud services business in China. The company has also started a local services and on-demand food delivery platform in China, following its acquisition of Ele.me in 2018.
In fiscal Q4, BABA posted revenues of 187.4 billion yuan, a jump of 64% year-over-year, topping consensus estimates of 179.9 billion yuan. However, the company reported an operating loss of 7.7 billion yuan, its first quarterly loss as a public company since its IPO in 2014.
A major reason for this loss was an antitrust fine of 18.2 billion yuan that Chinese regulators slapped on the company in April. Excluding the fine, it would have reported an operating profit of 10.6 billion yuan.
Following the results, Needham analyst Vincent Yu reiterated a Buy and a price target of $330 (45.5% upside) on the stock.
The company plans to increase investment in core strategic areas in FY2022. Those areas include helping merchants reduce their operating costs, acquisition of new users, technology innovation, strengthening supply chain capabilities, developing infrastructure, and increasing geographic coverage in China. It anticipates revenues in FY22 of 930 billion yuan, indicating nearly 30% growth year-over-year. (See Alibaba stock chart on TipRanks)
Analyst Yu views these investments as necessary and believes they could effectively expand Alibaba’s total addressable market (TAM) “to capture more of the RMB 42 trillion consumer market.” He added, “Alibaba has also repeatedly demonstrated its ability to monetize its business across different business models (such as cloud and logistics) in the long-run, making the margin headwind temporary, in our view.”
As a result of these investments, Yu expects adjusted EBITA to be flat in 2021.
BABA is looking at strengthening its investment in Taobao Deals, which offers value-for-money products for price-conscious consumers. The company is reaching out to consumers in rural and under-developed areas in China with Taobao Deals. The Taobao Deals app had 130 million active users in March, which is 27 million more than it had in December last year.
The popularity of the app has also resulted in average spending increasing more on Taobao Deals than average spending has increased in Chinese retail marketplaces.
Analyst Yu is of the view that BABA’s Taobao Live, a sales format that offers an interactive shopping experience, could drive the company’s revenue and gross merchandise value (GMV) growth in China.
The analyst added, “We think Alicloud will maintain its dominance in the public cloud market in China. Additional market share gains could come from food-delivery and offline retail, which represent a large, underpenetrated TAM for BABA.”
Consensus among analysts on Wall Street is a Strong Buy based on 25 Buys and 1 Hold. The average Alibaba price target of $301.60 implies approximately 33% upside potential to current levels.
Bottomline
While analysts are bullish about both stocks, based on the upside potential, it appears BABA is a better buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
