Alibaba stock (NYSE:BABA) and Amazon (NASDAQ:AMZN) are similar companies with high growth rates and similar e-commerce and web services businesses. Comparing their financial performance yields some interesting results.
BABA stock is up 18% year-to-date and AMZN is up 12%. Neither company pays a dividend. Alibaba’s stock market value is a little more than half that of Amazon. BABA’s market value is $426 billion and AMZN’s is $858 billion.
Financial Performance Comparison
Amazon’s sales are more than twice those of Alibaba. In its latest quarter, AMZN had revenue of $63.4 billion. BABA’s revenue was $16.74 billion, just 26% of Amazon’s. But Amazon’s sales grew just 20% year-over-year. Alibaba’s latest quarterly showed sales growth of 42%.
Amazingly, Alibaba made more net income than Amazon in the latest quarter. BABA produced net income of $2,785 million. Amazon made just $2,625 million. Moreover, BABA’s net income was up 150% year-over-year, but AMZN’s was up just 3.6%.
The same growth phenomenon occurred with free cash flow. Amazon had free cash flow of $2 billion in its latest quarter. Alibaba made $3.84 billion in free cash. With less than half of Amazon’s sales Alibaba made almost twice Amazon’s amount in free cash flow.
Alibaba Stock vs. Amazon KPI Comparison
Key Performance Indicators (KPI) show that Alibaba stock has much higher growth. Amazon keeps the number of its Prime members close to the vest. In early 2018, Jeff Bezos revealed that Amazon had more than 100 million members. But Alibaba Group says it had 755 million monthly active users (MAU) in the June 2019 quarter.
These two measures are not comparable. But it does give a sense of the scale that Alibaba Group has. For example, every one of AMZN’s would have to access Amazon’s site over seven times a month to be equal to the same MAU number as BABA. If Amazon has 150 million subscribers by now, they would have to access the site five times a month. Even if non-Prime members are included, for which there is no estimate, it seems clear that Alibaba has more active users.
Alibaba says it had 674 million annual active users as of June 2019. This was up 98 million or 17% year-over-year. Amazon does not reveal how many active users it has. Recently Amazon’s Prime membership was 103 million, up 3% since early 2018.
BABA Stock vs. AMZN Valuation
Alibaba is more expensive on a fundamental basis than Amazon. For example, BABA stock sells for 6 times its forward enterprise value-to-sales (EV/Sales), whereas AMZN is at 3 times, according to Seeking Alpha.
But interestingly, Alibaba stock is cheaper on a profitability basis. BABA stock is at 18 times forward earnings expectations. AMZN stock is at 52 times forward earnings. In terms of cash flow, BABA trades at 20 times forward EV-to-EBITDA. AMZN is at 21 times.
So Alibaba’s higher growth estimates compared to Amazon are not in the Alibaba stock price valuation.
Secrets to Their Success
A 2015 Harvard Business Review article featured Alibaba as an enterprise that learns how to “self-tune.” It learned to discover what works, adjust how to experiment, influence preferences and reinvent the enterprise.
Numerous examples show how Alibaba reset its vision. It learned what worked both with its customers and within its organization. The authors summed it up this way: “Alibaba leaves more room for good ideas to bubble up from the market.”
Both companies have learned to adapt to customer preferences and use innovation to build their appeal.
Bottom Line on Alibaba Stock
Going forward, expect that both companies will grow significantly. But investors in Alibaba stock do not have to pay extra for that growth, at least compared to Amazon stock.
Alibaba comes with extra risks as a foreign stock. The patient investor may find it worth the price, given its superior growth rates.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.