Alibaba threatens Amazon among investors
By Bloomberg
If you wanted to invest in an online retail giant that was pouring
money into adjacent businesses such as payments, entertainment,
logistics and cloud computing, until recently you'd probably buy
shares of Amazon.
The dominant U.S. online retailer has long reinvested its free cash
flow back into the company to fund expansion and new business
lines. It's trying to make the Amazon Prime one-touch payment
button a popular way for consumers to pay online. It's
experimenting with one-day delivery of everyday items, including
groceries. It runs a huge cloud computing platform, Amazon Web
Services, which powers companies including Dropbox, Netflix and
even parts of the CIA. And it's investing in entertainment with
original shows such as the new series "Transparent."
Investors, in turn, kept quiet when the company failed, over and
over, to deliver meaningful profits. They liked the growth and
expansion story. The feeling was the Amazon had a shot at truly
monopolizing huge swaths of the Internet. As my colleague Brad
Stone sums it up in his book "The Everything Store," Amazon's
mission is to be the cheapest, friendliest place to get everything
you need, a Wal-Mart for all things online.
But now, investors can get retail dominance by buying shares in
Alibaba. The Chinese Internet company, which this fall had the
largest initial public offering in U.S. history, has got exposure
to all of the new businesses that Amazon is exploring. And it has
something that Amazon doesn't: profits. A lot of profits.
When Alibaba reported financials as part of its IPO filing, it
revealed that revenue for the fiscal year through March had risen
52 percent to $8.6 billion (52.5 billion yuan) and that net income
had gained about 275 percent, to $2.5 billion.
Revenue growth started to slow before the IPO, but analysts still
believe that Alibaba's sales jumped by 42 percent in the quarter
ended Sept. 30. Compare that to Amazon, which saw net sales
increase by about 20 percent in the latest quarter.
Alibaba's transaction volume accounts for about 2 percent of
China's GDP, and the retailer has a majority share of China's
fast-growing e-commerce market. It's working to increase its mobile
presence, and it also has a stake in Alipay, which is akin to
PayPal. Alibaba owns or invests in businesses associated with
logistics, car rides on demand and the cloud. The company may even
want to invest in entertainment assets, and could be eyeing a stake
in Lionsgate.
Alibaba, unlike Amazon, has seen its share price soar, in part
because analysts expect the Chinese retailer to share good numbers
when it reports on Nov. 4. Alibaba shares are trading well above
$90, up from the $68 IPO price, so it's an expensive stock. The
high price shows, among other things, that investors believe the
company will continue to grow.
Amazon is hoping that investors will shrug off this week's
disappointing quarterly earnings, that they'll turn a blind eye
when next quarter is bad too, and that they'll be happy to invest
in a company that has its hands in all sorts of interesting
projects and new business lines.
That trick worked pretty well when Amazon was the only game in
town. But now there's a company in China putting together an
everything store of its own, and knows how to make money in the
process.
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