BABA vs. AMZN: Which e-commerce stock is better?

In this article, I evaluated two e-commerce companies, Alibaba (NYSE:BABA) and Amazon (NASDAQ:AMZN), using the TipRanks comparison tool below to see which is better. A closer look suggests a neutral outlook for Alibaba and a bullish outlook for Amazon.

China-based Alibaba operates several e-commerce sites, including Alibaba.com, Tmall and Taobao, and offers cloud computing and digital media and entertainment services. Similarly, US-based Amazon operates its own e-commerce website at Amazon.com and offers cloud computing services through Amazon Web Services. Amazon also offers media and entertainment through Prime Video and sells a variety of consumer electronics devices, including various smart home devices equipped with the digital assistant Alexa.

Alibaba’s U.S.-listed shares are up 4.2% year-to-date but only 1% over the past year, while Amazon’s shares are up 20% year-to-date and 57% over the past 12 months.

With such a dramatic difference in the share prices of these companies, it is no surprise that their valuations are very different. However, a deeper dive into their valuation dynamics and other recent trends reveal a clear winner in this combination.

Alibaba (NYSE:BABA)

At a price-to-earnings (P/E) ratio of 18.9x, Alibaba is trading near the midpoint of its typical valuation range of around 10x to 40x as of August 2019 (excluding the temporary rally that began in early 2022 and lasted until July 2023). On a forward P/E basis, Alibaba’s valuation has fallen to around 10.5x after peaking at around 32 in October 2020. However, a neutral rating seems appropriate given the other concerns weighing on BABA stock.

Importantly, BABA stock is not actually a stock. The U.S.-listed stock is actually American Depository Receipt (ADR) stock representing Alibaba stock, but technically it is not direct Alibaba stock.

Although Alibaba’s revenue growth has slowed in recent years and almost stopped in the year ended March 2023, it grew slightly again in the fiscal year ended last March. The Chinese retailer saw sales of 941.2 billion yen ($130.35 billion) for the full year, up 8% from the previous year.

Investors were initially dissatisfied with the latest quarterly results, which showed net profit falling 96% year-on-year to 919 million yen. However, this decline was primarily due to a sharp decline in valuations of Alibaba’s equity shares as a result of changes in market valuation.

Because of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) huge stock portfolio, Warren Buffett always advises investors to look at a company’s operating profits rather than net income, and the same goes for Alibaba. The Chinese retailer’s operating income fell 3% year-on-year, which is much easier to swallow.

But on Thursday morning, various news outlets reported that Alibaba was considering selling convertible bonds, sending its Hong Kong-listed shares lower before U.S. markets opened. The company reportedly needs to invest in its e-commerce and cloud businesses, which have been losing market share since Chinese authorities cracked down on them.

Despite this need, Alibaba authorized another $25 billion in share repurchases earlier this year, one of the largest buybacks in China’s history. So it’s easy to see Alibaba shares coming under pressure, especially given broader concerns about investing in Chinese stocks amid the threat of U.S. delisting

These concerns were allayed, at least temporarily, when U.S. regulators gained access to audits of companies that had previously been hidden by Chinese authorities. However, analyst TD Cowen said in April that the threat of delisting had not completely disappeared, suggesting that investors may want to take a wait-and-see approach on Alibaba, especially given the financial slowdown.

What is the target price for BABA stock?

Alibaba has a Strong Buy consensus rating based on 14 Buy ratings, three Hold ratings, and zero Sell ratings assigned over the last three months. Alibaba’s $103.46 average stock price target implies a 28.04% upside potential.

Amazon (NASDAQ:AMZN)

At a P/E ratio of 51.2x, Amazon is trading near the low end of its typical valuation range of 50x to 100x over the last five years, excluding the significant swings that began in February 2023 and ended in August 2023 r. On a P/E basis, it’s a similar story to Alibaba, as Amazon’s forward valuation has plummeted. The difference is that Amazon does not face the same problems as Alibaba. Given these factors, an optimistic outlook seems appropriate for Amazon.

While Alibaba’s recent results showed a slight decline, Amazon’s results were as strong as ever. In fact, Amazon Web Services had its best quarter in over a year, and the company’s total free cash flow hit a new record of $50 billion over the last 12 months.

The company is facing an artificial intelligence battle. However, CEO Andy Jassy said on the company’s first-quarter earnings call that the company is seeing “significant momentum in artificial intelligence, where we have already accumulated multi-billion dollars in revenue.” Amazon’s investment in generative artificial intelligence startup Anthropic appears to be paying off, given AWS’s 17% year-over-year net sales growth.

While Amazon hasn’t always been a company that many think of when considering blue-chip stocks, it has certainly established itself among industry leaders thanks to solid, long-term success. As a result, I believe Amazon is a stock worth buying and holding for the long term, especially at a time when investors can buy shares at a relative discount. This year, the company even joined the Dow Jones Industrial Average, which is a great honor and confirms its status as an economic leader.

What is the target price for AMZN stock?

Amazon has a consensus rating of “Strong Buy” based on 42 “Buy”, “Zero Hold” and “Zero Sell” ratings assigned over the past three months. Amazon’s $220.60 average stock price target implies a 21.8% upside potential.

Conclusion: neutral on BABA, bullish on AMZN

While Alibaba has long been considered the “Amazon of China,” its earnings and growth trends are currently unspectacular. Talk about the possibility of Alibaba issuing convertible bonds soon after agreeing to such a massive share buyback also calls into question the company’s capital allocation. After all, many investors will buy shares due to the large buyback authorization, but with potential dilution, it may be wiser to wait and see what happens.

On the other hand, Amazon stock looks reasonably valued right now. AWS’ renewed growth suggests the company is making progress in the fight against artificial intelligence. Beyond that, Amazon looks like a long-term buy-and-hold stock that most investors may never want to sell.

Disclosure