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Is Alibaba Group Holding Ltd (BABA) Stock Really Comparable to Amazon?

BABA stock is similar to AMZN in some ways, but it also carries a lot of risk

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If you’re even remotely paying attention to Wall Street, you’ve heard of China’s e-commerce giant Alibaba Group Holding Limited (NYSE:BABA). BABA stock has garnered quite a bit of media attention since making its way onto the scene in 2014 and now analysts have started to compare the firm to its American counterpart Amazon.com, Inc. (NASDAQ:AMZN).

Is Alibaba Group Holding Ltd (BABA) Stock Really Comparable to Amazon?
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Any stock that has been deemed “the next Amazon” deserves a second look, especially considering that AMZN has delivered returns of more than 2,000% to investors that bought into the stock 10 years ago.

However, while AMZN and Alibaba are both e-commerce giants, it’s important to consider whether the similarities end there.

BABA’s International Growth

Perhaps the biggest determinant of whether BABA stock can live up to its comparison with AMZN is whether Alibaba will be able to move beyond China. At the moment the Chinese e-commerce market is BABA’s bread and butter and the firm has done very little to break out of that bubble.

The problem with being reliant solely on Chinese customers is that Alibaba is limited in terms of future growth potential and the firm would also suffer alongside a slide in the Chinese economy.

That’s not to say that BABA hasn’t already taken steps to expand its business internationally — the firm’s affiliate Ant Financial recently bought Moneygram International Inc (NASDAQ:MGI), which could eventually develop into Alibaba’s own worldwide payments business.

However, the Ant and Moneygram tie-up are still a big what-if for BABA stock. Right now, Alibaba has very little international exposure, without which the firm will never live up to AMZN.

Alibaba Stock and Cloud Computing

Much like its American counterpart, BABA is building out a cloud computing business that is worth considering. Alibaba’s cloud computing arm is in the very early stages, generating just $765 million in sales. BABA’s cloud efforts have eaten into the firm’s profitability, with the business losing more than $90 million last year. However, all of these figures aren’t necessarily a bad thing.

Alibaba was, by all accounts, a late entrant into the cloud computing space. That means that the company is having to spend significantly in order to gain market share. That explains the lack of profitability and should provide investors with some comfort about the business’ inability to turn a profit. BABA’s cloud computing business has also put up some pretty impressive growth metrics over the last few quarters as well — the firm gained 114,000 new customers and saw revenue growth of 115% in the December quarter.

The picture that Alibaba’s financials paint of its cloud computing business looks very similar to Amazon Web Services five years ago, when it had just begun. It’s important to consider the fact that BABA is starting its cloud business much later than Amazon did, but as the industry is still relatively new, that factor shouldn’t hold BABA back.

There are definitely a lot of similarities between BABA and Amazon, especially if you believe in Alibaba’s efforts to expand internationally and the firm’s blossoming cloud computing arm. However, while they both oversee a massive e-commerce business, AMZN offers an impressive distribution and logistics network that BABA can’t hold a candle to.

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Article printed from InvestorPlace Media, http://investorplace.com/2017/03/alibaba-group-holding-ltd-baba-comparable-amazon/.

©2017 InvestorPlace Media, LLC