Alibaba Vs Amazon Stock: Which Is Best?

Alibaba vs Amazon Stock: Over the past decade, e-commerce has become a massive thread to physical retail outlets, and in many respects has already surpassed it. Just a few years ago, 1.66 billion people , and that figure is expected to rise by 500 million more people by 2021.

When it comes to e-commerce, two giants are clearly at the front of the pack: Alibaba [NYSE: BABA] and Amazon [NASDAQ: AMZN].

In June 2019, Amazon beat Apple [NASDAQ: AAPL] and Google [NASDAQ: GOOG] to become the world’s most valuable brand.

Meanwhile, Alibaba is often called “the Amazon of China” for its domination of the Chinese marketplace.

For investors looking to put their money in e-commerce stocks, Amazon and Alibaba seem like highly appealing options. The question is: which is best, Alibaba vs Amazon stock?

Pros and Cons of Investing in E-Commerce Stocks

The e-commerce industry has revolutionized the way that consumers shop for and buy products. It’s estimated that 7 in 10 Americans will make at least one online purchase this year.

While investors may worry that the e-commerce space is too saturated in markets like the U.S., the numbers tell a different story. Online sales still only account for roughly 20 percent of total retail sales in the country, so e-commerce still has quite a lot of room to grow in the U.S. – to say nothing of less saturated markets.

Another benefit of investing in e-commerce giants such as Amazon [NASDAQ: AMZN] and Alibaba [NYSE: BABA] is that the companies have diversified into industries beyond e-commerce:

  • Amazon acquired the upscale grocery store chain Whole Foods in 2017; the company also offers products and services in cloud computing, book publishing, video and music streaming, and consumer electronics (such as the Kindle e-reader and the Amazon Echo virtual assistant).
  • Like Amazon, Alibaba runs its own cloud computing service platform, as well as the online payment platform Alipay; it also holds various stakes in industries such as media and health and pharmaceuticals.

One drawback of purchasing stock in Alibaba and Amazon is their reliance on the strategic vision of their founders (Jack Ma and Jeff Bezos, respectively).

Both men are responsible for growing their companies from tiny startups into massive corporations with billions in annual revenue. It’s uncertain how their respective departures would shake up the landscape, although Amazon’s business seems to be unaffected by Bezos’ recently concluded divorce.

Finally, another concern about investing in Amazon [NASDAQ: AMZN] and Alibaba is the potential for regulation. Investors and experts have expressed worries that both Alibaba and Amazon will face future regulatory scrutiny due to their anti-competitive practices, which could hamstring their growth moving forward.

Is Amazon Stock A Buy?

Amazon stock already has one of the highest share prices on the market, but chances are good that it will continue to increase.

Wall Street firm Piper Jaffray projects that shares of Amazon [NASDAQ: AMZN] could rise by as much as 65 percent in the next two years, provided the right market conditions are met.

The financial metrics of Amazon look strong: north of a couple hundred billion in annual revenue, $10 billion in net income, tens of billions in cash, and comparatively low debt.

There’s no reason to assume that these solid figures will change anytime soon. During a recent 48-hour Amazon Prime Day sale, customers bought 175 million items – bigger than Black Friday and Cyber Monday put together.

Should You Invest in Alibaba Stock?

Alibaba [NYSE: BABA] currently dominates the Chinese e-commerce industry, with 58 percent market share. While Amazon is much bigger than Alibaba, the two companies’ 2018 net income were less than $1 billion apart: $10.1 billion for Amazon and $9.2 billion for Alibaba.

Part of the reason is due to Alibaba’s slightly different business model. Whereas Amazon needs to operate a vast network of warehouses around the world, Alibaba operates as more of a middleman between buyers and sellers, which keeps its operating costs lower.

Interestingly, Alibaba has shown signs that it plans to branch out from e-commerce. According to Alibaba CEO Daniel Zhang, cloud computing will be the company’s “main business” in the future.

Alibaba has already opened data centers across Asia and Europe, signaling its willingness to compete with larger cloud computing players such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform.

Alibaba Vs Amazon Stock: The Bottom Line

When it comes down to it, shares of both Alibaba [NYSE: BABA] and Amazon seem like an attractive buy.

Amazon shares have a much larger cost of entry, but the company also puts up bigger financial numbers. Meanwhile, Alibaba stock has a lower price-to-earnings ratio than Amazon, which means it’s priced at a higher discount.

Amazon [NASDAQ: AMZN] has the clear advantage when it comes to market share: it’s already the top online retailer throughout North America, Europe, and many other countries in the world. However, Alibaba is working hard to catch up, expanding its influence outside its home base of China,

While Amazon is expected to outperform Alibaba [NYSE: BABA] in terms of sheer financial performance, Alibaba may be the more cost-efficient alternative and the better value. Both Amazon and Alibaba demonstrate outstanding growth potential in the near future, and the winner here may be up to the individual investor’s discretion.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.