The e-commerce sector is gaining market share as consumers prefer online shopping and convenience, fueling their success and expansion in various industries. Traditional retail companies face increasing pressure to adapt to the changing landscape and invest in their online presence to remain competitive.
This shift towards e-commerce is reshaping how businesses operate and interact with customers, leading to a more digital-centric approach to the market. Consumer spending in the United States and worldwide keeps growing as the population grows and individuals become wealthier. E-commerce stocks are grabbing a larger share of this expanding pie every day.
Increased internet access, greater disposable incomes, and the convenience of online shopping drive the expansion of e-commerce. As more consumers turn to e-commerce for their buying requirements, businesses must adapt and extend their online presence to meet the demands of this increasing industry.
The global e-commerce market is expected to generate $4.45 trillion in revenue by 2024. It is expected to grow at a 9.5% CAGR, reaching a market volume of $7 trillion by 2029. Furthermore, the US e-commerce market is expected to reach 334.9 million users by 2029.
Given this backdrop, let’s compare two e-commerce stocks, Alibaba Group Holding Limited (BABA) and Amazon.com, Inc. (AMZN), to understand why AMZN will be the better long-term buy.
The Case for Alibaba Group Holding Stock
Alibaba Group Holding Limited (BABA), headquartered in Hangzhou, China, provides merchants, retailers, and other businesses with technology infrastructure and marketing reach for enhanced user and customer engagement. It operates in China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, Innovation Initiatives, and Others segments.
BABA’s stock has gained 5.7% over the past month to close the last trading session at $75.55. However, the stock has declined 22.2% over the past nine months.
BABA’s revenue grew at a CAGR of 12.9% over the past three years. On the other hand, its net income shrank at a CAGR of 14.3% over the past three years.
In terms of forward EV/Sales, BABA is trading at 1.11x, 7.1% lower than the industry average of 1.19x. Likewise, its non-GAAP PEG is trading at 0.73x, 50.4% lower than the 1.48x industry average. Also, its EV/EBITDA is trading at 5.38x, 42.9% lower than the 9.41x industry average.
In terms of the trailing-12-month net income margin, BABA’s 10.81% is 138.2% higher than the 4.54% industry average. Likewise, its 13.74% trailing-12-month EBIT margin is 81.1% higher than the industry average of 7.58%. Additionally, its 19.59% trailing-12-month EBITDA margin is 78.5% higher than the industry average of 10.97%.
However, its 10.07% trailing-12-month Return on Common Equity is 11.5% lower than the industry average of 11.37%. Also, its 0.52x trailing-12-month asset turnover ratio is 47.9% lower than the industry average of 0.99x.
For the fiscal third quarter that ended December 31, 2023, BABA’s revenue increased 5.1% year-over-year to RMB 260.35 billion ($35.91 billion). Its adjusted EBITA grew 2% from the year-ago value to RMB 52.84 billion ($7.29 billion). The company reported non-GAAP net income and non-GAAP earnings per share of RMB 47.95 billion ($6.61 billion) and RMB 2.37, respectively.
Street expects BABA’s revenue for the quarter ended March 31, 2024, to increase 2.6% year-over-year to $30.35 billion. Its EPS for the same quarter is expected to decline 6.3% year-over-year to $1.43.
For fiscal 2024, BABA’s EPS and revenue are expected to grow 9% and 5.3% year-over-year to $8.45 and $130 billion, respectively. The company surpassed the consensus EPS estimates in three of the trailing four quarters.
BABA’s POWR Ratings reflect this promising outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum and Quality. Within the B-rated China industry, it is ranked #10 out of 39 stocks. To see the additional grades of BABA for Growth, Value, Stability, and Sentiment, click here.
The Case for Amazon Stock
Amazon.com, Inc. (AMZN) operates both online and in physical outlets, sells consumer products, and offers advertising and subscription services. It functions across three segments: North America, International, and Amazon Web Services (AWS).
AMZN’s stock has gained 71.1% over the past year and 50.2% over the past six months, closing the last trading session at $179.62.
AMZN’s revenue grew at a CAGR of 14.2% over the past three years. Also, its net income grew at a CAGR of 12.6% during the same period.
In terms of forward non-GAAP P/E, AMZN is trading at 43.17x, 182.7% higher than the industry average of 15.27x. Likewise, its EV/EBIT is trading at 35.66x, 163.1% higher than the 13.55x industry average. Also, its EV/EBITDA is trading at 14.53x, 54.4% higher than the 9.41x industry average.
In terms of the trailing-12-month CAPEX / Sales, AMZN’s 9.17% is 198.8% higher than the 3.07% industry average. Likewise, its 17.49% trailing-12-month Return on Common Equity is 53.8% higher than the 11.37% industry average. Also, its 7.91% trailing-12-month levered FCF margin is 42.9% higher than the 5.54% industry average.
AMZN’s total net sales during the fiscal year that ended December 31, 2023, came in at $691.96 billion, increased 13.9% year-over-year. The company’s operating income grew 382.6% from the year-ago value to $13.21 billion. In addition, the company’s net income and EPS came in at $10.62 billion and $1, up considerably from the prior year’s quarter, respectively.
Analysts expect AMZN’s EPS and revenue for the quarter ended March 31, 2024, to increase 168.3% and 11.9% year-over-year to $0.83 and $142.56 billion, respectively. Its EPS and revenue for fiscal 2024 are expected to grow 43.7% and 11.6% year-over-year to $4.17 and $641.54 billion, respectively.
AMZN’s POWR Ratings reflect its bright prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and Sentiment and a B for Momentum and Quality. Within the B-rated Internet industry, it is ranked #4 out of 54 stocks. Beyond what we stated above, we also have given AMZN grades for Value and Stability. Get all the AMZN ratings here.
Alibaba (BABA) vs. Amazon (AMZN): Which E-Commerce Stock Is the Better Long-Term Buy?
E-commerce has grown significantly in recent years, with more people choosing online shopping for convenience and variety. This tendency will continue as technology progresses and more businesses adopt digital marketplaces.
Companies like BABA and AMZN, at the forefront of e-commerce innovation, are expected to continue dominating the market due to their robust infrastructure and customer base. Additionally, the increasing popularity of mobile shopping apps will also contribute to the growth of e-commerce as more consumers prefer shopping on-the-go.
BABA and AMZN look well-positioned to capitalize on the industry’s promising prospects. Although both have solid fundamentals and robust profitability, AMZN is a better choice than BABA due to its favorable historical growth and analyst estimates. Additionally, AMZN's diverse product offerings and strong brand recognition give it a competitive edge in the e-commerce market.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. If you’re looking for other top-rated stocks in the Internet industry, click here. Similarly, click here if you want to know about other top-rated stocks in the China industry.
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AMZN shares were trading at $180.06 per share on Monday morning, up $0.44 (+0.24%). Year-to-date, AMZN has gained 18.51%, versus a 7.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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