For as long as Alibaba Group Holding Ltd (NYSE:BABA) has been publicly listed in the United States, BABA stock has been compared to that of e-commerce rival Amazon.com, Inc. (NASDAQ:AMZN). And truth be told, it’s not an unfair comparison. Both are the powerhouse names in their respective global hemispheres, and each has always had an eye on the other’s market.
Last week, however, Alibaba CEO Jack Ma served up some comments that may force the market to rethink the comparisons it’s been making between his company and Amazon. See, Ma isn’t trying to copy Amazon’s model to the letter. He’s got a slightly different plan, one different enough for Alibaba stock investors to keep it in mind.
Alibaba: the Un-Amazon
To be sure, there are still undeniable overlaps between the two companies. There always will be. Each competes for the same online-spending dollars, and each is now expanding its footprint by adding services like cloud storage and proprietary payment platforms.
There are still plenty of stark differences in the philosophies driving each company. Ma said as much at a two-day conference held in Detroit on June 20.
The event was ultimately a recruitment seminar aimed at bringing small U.S. companies into the Alibaba fold, explaining how they could — and why they should — start taking aim at China’s growing consumer class (and, of course, use Alibaba as the means to make that happen). As Ma plainly explained, “Our business strategy in the U.S.A. is not coming here to do the same thing like an Amazon or eBay. Our model is to bring the American small businesses and farmers to China, to Asia.”
It’s a model that underscores another nuanced difference between the two organizations. Whereas Amazon is largely a retailer of goods it’s bought at wholesale prices and as such requires massive storage facilities for that merchandise, Alibaba aims to only be a broker, connecting buyers and sellers, and keeping a small part of the transaction price for itself.
In that light, a prediction made by Ma earlier in June makes much more sense. He forecast that by 2035, Alibaba would be the world’s fifth-largest economy in and of itself, meaning the platform would facilitate just slightly less commerce than the United States, China (presumably the ‘rest of’ China), Japan, and Germany do in any given year.
Considering the company doesn’t actually have to physically handle goods to grow its revenue base, it’s not terribly hard to believe that it’s possible.
The irony — or, brilliance — of Ma’s mission is that it’s not just pro-growth, but it’s also pro-America.
Ma’s Million Manufacturers
Love him or hate him for it, but don’t deny that President Trump is doing almost anything he feasibly can to send less dollars overseas and induce the sale of more U.S.-made goods to foreign buyers. Alibaba’s new initiative takes dead-aim at that matter, mustering support from the White House’s current resident.
At the same time, Ma’s goal of adding one million small U.S. businesses to its new roster of organizations that sell goods into China and other key Alibaba markets should also create at least one million new U.S. jobs, making for another upside that’s difficult for any branch of the Federal government to argue against.
The timing is ideal, too. China’s growing consumer class is now largely self-fueling demand for quality goods in greater quantities than domestic manufacturing can supply. This has led to increasing demand for U.S.-made goods. As Ma explained it, demand for the American products — from shoes to cosmetics to strawberries — has now reached an inflection point.
Looking Ahead for BABA Stock
It’s an interesting development to be sure, with the company fully matured and now not only able to define its own future, but shape it on its own terms. There’s an added x-factor to Alibaba’s brand of e-commerce, though, that could easily seal the deal for any potential investors still on the fence.
JPMorgan analyst Alex Yao explains it best within his new bullish view of Alibaba:
“We believe Alibaba’s core commerce is expanding from traffic monetization to data monetization and such trend will quickly expand to its media/cloud businesses. Such expansion not only allows Alibaba to tap into non-transaction-based corporate budget (e.g. market research, brand awareness, and customer service), but also supports our investment thesis based on sustainable revenue/earnings growth.”
He’s right. Not only is Alibaba building a giant e-commerce machine, Ma is building a very smart e-commerce machine that will know its customers just as well as Amazon knows who it sells to. That’s something Alibaba hadn’t been overly concerned about until recently.
As for what it all means to current and would-be BABA stock holders, Yao’s $190 price target doesn’t seem unreasonable. Jack Ma has very much turned up the heat in a savvy way.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
