E-commerce giants Amazon.com, Inc. (AMZN) and Alibaba Group Holding Limited (BABA) need no introduction. AMZN retails consumer products and subscriptions online and operates Amazon Web Services (AWS), one of the biggest cloud platforms in the digital computing space. It also offers personalized shopping services, web-based credit card payment, and direct shipping.
On the other hand, China-based BABA provides technology infrastructure and marketing reach to merchants, brands, retailers, and other businesses to engage with their customers internationally. It operates through China commerce; International commerce; Local consumer services; 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 the e-commerce industry participants this year. However, a steady unemployment rate for four consecutive months, resilient consumer spending, and enhanced delivery services should keep fundamentally sound e-commerce companies afloat.
Offering a personalized shopping experience to keep pace with changing consumer tastes, multi-channel inventory management, tracking of shipments, and contactless delivery services should help the industry grow. Also, the strengthening dollar should encourage domestic consumers to buy more foreign goods. The global B2C e-Commerce market is expected to grow at an 8.1% CAGR to reach $8.02 trillion by 2030.
While BABA lost 3% over the past month, AMZN surged 6.5%. But which stock is better 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 of their business activities and products, and provide actionable insights and energy-saving recommendations.
This is in sync with BABA’s carbon neutrality pledge to share its energy-efficient technologies with its customers and business partners.
On July 12, 2022, AMZN’s Amazon Web Services, Inc. (AWS) company launched Apache Spark and Hive, which helps customers run analytics applications using open-source big data frameworks, Amazon MSK to simplify real-time data ingestion and streaming, and Amazon Redshift to run high-performance data warehousing and analytics workloads without managing clusters.
These easier and cost-effective three new serverless analytics offerings for Amazon EMR help customers analyze vast amounts of data without configuring, scaling, or managing the underlying infrastructure. This should witness high demand in the coming months.
Recent Financial Results
For the fiscal 2022 fourth quarter ended March 31, 2022, BABA’s revenue increased 8.9% year-over-year to $32.19 billion. The company’s income from operations came in at $2.64 billion for the quarter, compared to a loss of $1.17 in the prior-year period.
While its non-GAAP net income decreased 24.5% year-over-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 income came in at $3.37 billion, down 58.3% from the year-ago period.
Its net loss came in at $3.84 billion, compared to a net income of $8.11 billion in the prior-year period. AMZN’s EPS came in at $7.56, versus $15.79 in the year-ago period. 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 revenue, EBITDA, and tangible book value have increased 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 rise 20.1% in fiscal 2023. 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 at 0.1% per annum 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 decrease 78.4% year-over-year in fiscal 2023, ending March 31, 2023, and 277.1% in fiscal 2023. The company’s revenue 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 40.5% rate per annum over the next five years.
Valuation
In terms of forward EV/Sales, AMZN is currently trading at 2.30x, 24.3% higher than BABA’s 1.85x. In terms of non-GAAP forward P/E, BABA’s 14x compares with AMZN’s 184.13x.
Profitability
AMZN’s trailing-12-month revenue is 3.6 times that of BABA’s. Also, AMZN is more profitable, with a 42.1% gross profit margin versus AMZN’s 36.8%.
Furthermore, AMZN’s ROE and ROTC of 18.1% and 4.4% compare with AMZN’s 5.1% and 4.7%, respectively.
POWR Ratings
While BABA has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, AMZN has an overall D grade, equating to Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both BABA and AMZN have a C grade for Momentum, consistent with their mixed-price performance over the past year.
BABA has a C grade for Value, in sync with its slightly higher-than-industry valuation ratios. BABA’s 14x non-GAAP forward P/E is 27.2% higher than the 11x industry average. AMZN’s D grade for Value is in sync with its overvaluation. AMZN’s 184.13x non-GAAP forward P/E is 1573.4% higher than the 11x industry average.
Of the 43 stocks in the F-rated China group, BABA is ranked #21.
AMZN is ranked #38 of 66 stocks in the F-rated Internet industry.
Beyond what we have stated above, our POWR Ratings system has graded BABA and AMZN for Stability, Growth, Sentiment, and Quality. Get all BABA ratings here. Also, click here to see the additional POWR Ratings for AMZN.
The Winner
The regulatory crackdown slowed BABA's dealmaking pace, making it cut a third of staff in its in-house deals team. Also, China’s COVID restrictions have been weighing heavily on its growth.
On the other hand, AMZN’s extremely high valuation and its decision to reduce the number of products it sells under its own brand are keeping investors worried.
Moreover, the impact of aggressive interest rate hikes and the bleak outlook of BABA and AMZN make neither of the stocks good investments now. While AMZN is best avoided now due to its overvaluation, it could 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 top-rated stocks in the Internet industry and here for those in the China industry.
BABA shares rose $0.13 (+0.13%) in after-hours trading Friday. Year-to-date, BABA has declined -13.76%, versus a -18.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
Alibaba vs. Amazon: Which E-Commerce Giant Is the Better Investment? StockNews.com
