Amazon v/s Alibaba Who Will Win

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In the field of e-commerce, the marketplace tends to be on the growth. More consumers, these days, prefer the convenience of procuring goods online. Various companies, both small and big, have embraced the current advantages of combining the retail locations and supplemental internet-based stores for matching the needs of multiple customers. 

But, then you have some of the other e-commerce giants like Alibaba and Amazon, who have become some noteworthy players in this market by just operating through online presence only. While these two platforms are known to have distinct features that make them different from the rest, their business models will differ quite a lot. Amazon is noted to be one massive retailer when it comes to new and used goods. Alibaba, on the other hand, will act the role of a middleman for the sellers and buyers.

The Business Model Followed by Amazon

Amazon is mostly touted to be the largest online retailer and will operate one business model with multiple moving parts. At first, the company sells the goods directly. A percentage of the products will be provided to the buyers through the online storefront of Amazon with a small markup. Here, the inventory is kept in the large network of the company’s warehouses.

• Most of the consumers will be seen visiting the site of the company by assuming that the rates are less expensive and available readily for shipping and purchase.
• Along with that, Amazon gets to provide a platform for the other retailers, who are willing to sell items to buyers. The products sold through the partnered retailers of Amazon are mostly common items and those with one higher purchase price. 
• It will allow Amazon to avoid holding any slow-moving inventory, which might otherwise dilute profit. Even though Amazon will not assess a fee for retailer partners for listing items for sale, the company will retain one part of the sale’s rate as commission.
• Amazon is also noted to maintain that subscription-based business-centric model through the Amazon Prime service. There will be a small electronics product line available too.  
• If you have one Prime account with Amazon, you have to pay a certain annual fee for securing free same-day or two-day shipping on some eligible items and gain access to streaming media like movies or digital music.
• Amazon also gets the chance to generate revenue from selling e-reader, the Kindle, and the e-book and mobile-based application purchases, as provided to the Kindle owners right now.

Alibaba and Its Noteworthy Business Module

Amazon is a noted platform perfectly crafted for most American customers out there. Similarly, you have Alibaba, perfect for the Chinese e-commerce market. Even though the company gets to operate through various combinations of the business models, the core business of Alibaba will resemble that of e-Bay. 

• Alibaba will mainly act as one middleman between the sellers and buyers online and will facilitate sales of goods right between two parties through extensive website networks.
• It has the largest site, namely Taobao, which will operate as a fee-free market source. Here, neither the buyer nor the seller had to assess the fee for completing any form of transaction.
• On the other hand, the sellers in this platform will pay to get higher ranks on the internal search engine of the site. That helps to generate advertising revenue for Alibaba, which will more or less resemble the core business model of Google.
• Even though most sellers will utilize the Taobao platform as smaller merchants, Alibaba will present a platform for the large retailers dedicatedly. Tmall is one such e-commerce site, operated and owned by Alibaba, which caters to popular brands like Nike, Gap, Apple, and more.
• Even though Tmall happens to have just a fraction of active sellers when compared to Taobao, Alibaba gets the chance to generate revenue from annual user fees, deposits, and sales commissions. These will be charged to retailers, who will be utilizing the site now.
• Along with that and the e-commerce sites, Alibaba has been one major competitor in the financial sector of the Chinese people. For combating the customer concerns revolving around transaction validity completion online and security, Alibaba ended up with Alipay. 
• Alipay is targeted to be a secured payment system, where it will protect the buyers in those events where sellers refuse or fail to deliver goods sold. 
• Apart from this Alipay platform, Alibaba can further generate revenue from the latest launched micro-lending platform. This source is up for catering to some individual borrowers.

Comparing The Core Business for Alibaba and Amazon

Alibaba and Amazon both have been seen to grow fast, while this coronavirus pandemic is still on. The lockdown in different parts of the world has actually forced people to adopt and increase the amount of online shopping. Thus, these e-commerce sources are gaining more popularity than ever. You can take a quick look at the major business prospects and a bit closer. 

Alibaba is stated to be a marketplace, which will not own inventory of all the merchandise sold. It will hardly connect the sellers and buyers together. Then you have Amazon, on the other hand, which is targeted as a re-seller. It will own the inventory and the supply chain of the merchandise and sell the same to the customers directly. 

In the same manner, Alibaba gets to operate a business with less overhead when compared to Amazon. It will explain the major difference in the company’s margin. Amazon houses a profit margin, which is lower at 4.1% versus that of Alibaba at 23.3%.

Alibaba is stated to outperform Amazon for the medium to long run, but not in the near term. This result came into the forefront depending on the core-eCommerce operations of Alibaba with larger, higher margins. These are notable with lighter supportive infrastructure, which makes them less capital intensive.

Alibaba is subjected to put up extra products than Amazon for its said customers because of the quality business model. On the other hand, you can see Alibaba generating around 86% of total revenues from the core e-commerce global operations. This figure, on the other hand, is quite lower for Amazon, which will make around 71% of online retail.

As Alibaba relies on e-commerce operations, there will still be some room to grow in some of the other non-core businesses. Some of the points included are Digital Entertainment, Cloud, and more.

The Trends in Stock Price and Reviewing the Fundamentals

From 2015 to 2019 period, Amazon stock has grown at around 1.1 times more than that of Alibaba Group. Amazon.com stock went right from $676 in 2015 to up to $1,848 towards the end of 2019. It will represent one whopping change of around 173%. And during that same period, Alibaba group went right from $81 to $212, which will also represent a growth of 162%. Now, reviewing the fundamentals will give you a clear idea of this sector.

Historical based EPS Growth: The annual EPS growth of Amazon.com 2014-19 was 107%, which is 3.2 times more than the annualized EPS growth of Alibaba at 34%.

The historical revenue growth: The annualized revenue growth of Amazon.com 2014-19 was at 27%. It was 0.6 times that of the Alibaba annualized revenue growth of around 46%.

Trends in P/E multiple for years: Depending on the trailing P.E ratios of 2019, the Amazon stock looked pretty attractive when compared to the previous years and expense of Alibaba.

Right now, the dashboard creates a report based on the COVID breakout, which created one macro picture altogether. It literally complements the analysis of coronavirus outbreak’s impact on a diversified set of Alibaba’s multinational peers, and that will include Amazon too.

The expected timeline for the recovery in such a pandemic situation and in Alibaba stock is hinging on that broader containment of COVID spread. The dashboard literally forecasts the COVID 19 cases in the US with cross-country comparison. The analysis talks about the recovering time frame and that possible virus spread.

Moving Towards The Geographical Focus

As it is a known fact already, the primary money-making operations of Alibaba comes within China. So, it holds around 84% of its worth from China and 16% internationally. But, what is more interesting to know that Amazon’s business comes mostly from outside North America, which stands at 40%!

There have been some major talks on how Amazon should fear Alibaba and its entering into the US market. It is going to be one major interesting point to check out. But, if you want to check who has a better track record of expanding the market outside their home market, then the award goes to Amazon.

Alibaba v/s Amazon – Who Sells More Stuff

In the year 2013, it was stated that Alibaba reported Gross Merchandize Volume or GMV or around $250 billion. It means more than 4250 billion worth of transactions has been made or facilitated through this platform. 

In contrast, Amazon had around $61 billion as product revenue in 2013, which is pretty less than that of Alibaba. But, this number has already proven to be quite misleading as Amazon never counts any of the sales made by the third party merchants within this said number. They are here to just count the sales where they get to do business with the customers by selling the items directly to them.

So, it is quite difficult to make that comparison between Amazon and Alibaba as they will not disclose the same GMV metric. In some of the recent articles, experts have determined that Amazon’s actual GMV will be around two times more than what has been mentioned in the product revenue. It is probably safe to say that Alibaba has a larger product sales standpoint, even though it is not possible to know that for sure.

The Fee and Service Revenues to Address

It is vital for you to understand that the GMV is not the same as what the company gets to collect in profits or revenue. An example will help you understand this model better. 

• For example, if someone places a $100 order on Alibaba, then this amount will get counted towards the GMV report. But, Alibaba is here to get a tiny fraction of that as a transaction fee, which is as low as $2. This tiny fee is pretty important as that’s what Alibaba gets as profit.
• Whenever you get to compare that money that Alibaba and even Amazon generate from service fees, then a different picture will come in the front as size emerges.
• Despite powering over a marketplace that moves more goods significantly, Alibaba will never collect nearly as much fee or sales commission when compared to Amazon.
• There will be some other fees associated with services and included within the chart. Some of those are cloud-based computing services, but those are mainly made-up fees designed for charging the 3rd party sellers.

Going Around The Profitability Font

Alibaba is known for selling out more stuff. Amazon, on the other hand, generates higher fee revenues in a significant manner. So, you will end up thinking about which platform will make some extra money. Well, the answer is shocking, and that is Alibaba.

• In the year 2013, Alibaba made over ten times more money than Amazon! While the profit level of Alibaba has grown consistently within the past few years, Amazon has already languished. In 2012, amazon even lost some money!
• Unlike the field in Alibaba, Amazon will stock their products. Building out the warehouses in an attempt to take over the e-commerce sector is not that small task as expected. For normalizing the scenario a bit, it is vital to check out various metrics. You have the free cash flow. 
• Free cash flow mainly talks about the amount of cash a company is able to generate and remove the noise as introduced by the accounting techniques and other events. It helps to offer a clear picture of the business and its health.

Normally, the cost associated with the warehouse building will be taken as free cash flow. But it is better to add that expansion cost back for normalizing comparison. Choosing between Alibaba and Amazon is a solely private preference till the end.