Amazon Vs. Alibaba: Which E-commerce Giant Is An Investor Favorite?

Two e-commerce giants — Amazon.com Inc AMZN and Alibaba Group Holding Ltd BABA — are popular among the investing community. Let’s take a look at who could be an investor favorite between the two corporates.

Amazon’s latest earnings report and conference call, indicate that its subscription business is growing steadily, with a potential revenue base of $100 billion by 2030. And it officially took over UPS and FedEx to become the biggest e-commerce delivery giant in the U.S.

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A few catalysts that could work in Amazon’s favor include the company’s reduction of cost of One Medical service by $100, and its plans to run ads on Prime Video and to offer a flywheel effect for new services.

Labor strikes do present a potential risk, potentially increasing costs and impacting operating margins. However, recent revenue growth and rising profits may mitigate any impact that side.

Some believe that optimism and growth potential associated with Amazon stock may already be priced into it. Amazon stock is up 72.14% since the beginning of the year. Alibaba’s stock is down 15.71%, on the other hand.

Expectedly, Amazon stock’s trailing P/E is 77.35 versus Alibaba’s more attractive 10.86. On a forward earnings basis as well, Alibaba’s P/E of 7.68 appears more attractive than Amazon’s 45.6.

While analysts rate both stocks a Buy, the upside in Alibaba is far ahead of that on Amazon stock. Analysts see a 65.42% upside from current prices for Alibaba stock vis-à-vis 6.9% for Amazon stock.

But, do Alibaba’s fundamentals support its attractive valuation?

Alibaba has a diverse range of offerings including e-commerce, cloud services, digital media, and logistics. The company has strong growth potential in its strategic segments.

Given its undervaluation, some investors find the stock to be an appealing entry point due to its recent decline. However, risks related to competition, economic downturns, and political influence, continue to cast doubt about it being a viable investment opportunity.

Alibaba’s Cloud business, for example, experienced its second outage in a month.

As such, despite its attractive valuation, uncertainties and risks associated with China, continue to make Amazon an investor pick over Alibaba. Google Trends data indicates interest in Amazon stock is at 95% compared to less than 1% for Alibaba.

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