Alibaba (WKN: A117ME / ISIN: US01609W1027, Industry: Ecommerce, Country: China) Stock Analysis 2/15/21.
We are all familiar with the term “Open Sesame”. Read across various books and comics, seen across TV shows and movies and heard and observed across magic shows, this word reasonates with a magic feeling in all of us taking us back to a nostalgic childhood where the only thing that mattered was the quest for magic.
Ask anyone though about the origin of that word and the answer to that would be Alibaba and the forty thieves, even from those who have not even read the whole story.
Such is the popularity of this word and its universal recognition across language, cultural and geographical barriers prompted Jack Ma to name his company Alibaba. Having begun as an ecommerce company five years after the founding of Amazon, today it competes with and stands toe to toe with it as one of the world’s largest retailer and Ecommerce Company in the world.
While outwardly both may have a similar business model, there are fundamental differences on a deeper level which make Alibaba’s model far superior and yet its stock remains undervalued as we shall see.
The biggest fundamental difference between their two business models and one which will ensure Alibaba wins the trust of its vendors over Amazon is the inherent conflict of interest built into Amazon’s style of operation. Amazon not only provides a platform for vendors to meet buyers but also runs its own manufacturing, distribution and warehousing subsidiary called Amazon Basics which manufactures and sells copies of the same products that other sellers on its platform sell.
This is a serious conflict of interest and one which has created controversy most recently on the Tripod case where Amazon not only copied tripods from a seller, selling the same tripod at a cheaper rate on Amazon Basics, it also banned the seller. This conflict of interest however does not occur with Alibaba who solely provides the platform and has neither manufactured, nor intends to manufacture and compete with its sellers. Secondly as much as it is popular in retail, Amazon is yet to turn a profit from it.
Almost all of its money is earned from AWS which is its web hosting services. The recent removal of Parler has shone a light on that as well and with Microsoft’s Azure providing an equally stable and quality platform, companies and apps will be wary of putting their trust in a hosting service that will shut them down whenever they see fit.
This shift will see profits and cash flows of Amazon impacted and shrink while its new offerings of streaming services is yet to see profitability. Alibaba does not have any such issues, turning profitable in 2002 itself. While it has had similar diversifications including cloud and streaming services, its major and most important diversification has been Ant Financial which is a force in itself, especially in China. Alibaba’s revenue per share has gone up by more than ten times in 7 years. That is an astounding 42% CAGR.
Alibaba: CAGR 42%
Amazon: CAGR 22%
Alibaba’s revenue per share has gone up by more than ten times in 7 years. That is an astounding 42% CAGR.
Amazon on the other hand has been stable growing at a modest 22% CAGR.
Price to Earnings Ratio:
Price to Cash Flow Ratio:
Relative Strength 3 months:
Relative Strength 1 year:
When comparing the valuations, one finds Alibaba to be highly undervalued and Amazon to be overvalued as compared to the industry.
The momentum may not be on the side of Alibaba at the moment, but it is poised to turn soon enough.
Fair Value Alibaba: 700 USD / Current Stock Price: 265 USD.
Fair Value Amazon: 2460 USD / Current Stock Price: 3350 USD.
Also the comparison of all available fair value calculations show that the Alibaba stock is undervalued and the Amazon stock overvalued.
The recent disappearance of its founder Jack Ma put the company’s prospects in jeopardy and the stock price took a nose dive on information of the Chinese govt. going after the company.
However what many don’t realize is that a company this large is not defined by one man. As Apple’s success after the passing of Steve Jobs has shown, a company’s strong fundamentals are all that matter. As such Alibaba now sits comfortably amongst the too big to fail companies and while its founder may be in jeopardy, the company is sure to sustain and grow splendidly.
A part of the ill will towards Alibaba stems from it being a Chinese company and the rising sentiment against China do not help its case, but as the saying goes, in business Price Trumps all.
No sentiment is bigger than the best price. China is the factory of the world & as such produces the highest quality of products at the cheapest rates. This ultimately makes it the best choice for suppliers across the globe and that is what Alibaba does with its B2B model. With a no conflict business model that inspires trust, profitable main and side businesses, sole access to a billion+ market as well as providing access to the global markets for its suppliers, Alibaba far surpasses its competitors.
With the premium tools of the Fair Value Calculator method, you can call up such analyzes for more than 30,000 stocks within seconds. All information on this page comes from the premium tool of the Fair Value Calculator. To be able to access the Premium Tools, you must have a Premium Membership:
Disclaimers: fairvalue-calculator.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on fairvalue-calculator.com represent a recommendation to buy or sell a security. The experts may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall fairvalue-calculator.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on fairvalue-calculator.com, or relating to the use of, or inability to use, fairvalue-calculator.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. To follow the instructions on this site is no guarantee for success in the stock market. Stock investments are risky and can cause financial damage.