I get it. There are plenty of investors who think that Alibaba Group Holding Ltd (NASDAQ:BABA) is the Chinese Amazon.com, Inc. (NASDAQ:AMZN). I’m sure there are many investors who got in early and have enjoyed big profits, paper or realized.
My goal when researching companies is not to find momentum trades, but to find long-term investable companies that I think will outperform the broad market over time.
BABA stock just has way too many risks, and I don’t like some of the side games that Jack Ma is playing. In this case, I’m talking about Alibaba’s move into e-commerce in India. I’m sure that India has a massive consumer base and there is potentially money to be made there, but so far, the data isn’t encouraging and I don’t like that BABA has led a $200 million round of investment in a startup called Paytm E-commerce Pvt.
BABA Stock and the India Market
Yes, there is money to be made in India, as I mentioned. Even Amazon is pushing to invest $5 billion in India, according to Bloomberg. Yet BABA stock is taking a risk not only an established retailer but on a startup.
Also, a deeper dive into India shows that there may not be as much profit there as one may think.
An interesting article in The Economic Times points out that the “combined losses of ecommerce majors Amazon, Flipkart, and Snapdeal are twice the annual budget of the Indian Space Research Organisation,” and “more than doubled in FY 2015-16.”
One source reports that Amazon lost about $535 million in the fiscal year, Snapdeal lost $443 million and Flipkart ditched $782 million.
Amazon has the upper hand because it can afford to out-discount everyone else with its deep pockets. In any race to the bottom, the behemoth will always win because it’s a war of attrition and they have more ammunition with which to exhaust the enemy.