Alibaba vs Amazon, What Stock Should I Buy?

welcome everybody thanks for joining in this video we're gonna be talking about a company called alibaba this is a company that if you're not in the investing scene you may think of this company as a cheap chinese e-commerce website that you can order cheap goods from that's usually what it's from discounted goods from china it's much more than that it is a very large important and growing company in china that resembles amazon in a lot of ways it's kind of considered the amazon in china even though there's some distinct differences so we're gonna be talking about what alibaba does how it resembles amazon how it's different than amazon the valuation of it and then the risks of if this company is worth it to invest in is it worth the risk is it worth the risk of dealing with the chinese government and the weird things that they've been doing with companies that are traded on u.s stock exchanges so we're gonna be going over all of that in this episode now the first thing i want to look at here is the stock chart of alibaba this is what makes this an intriguing investment if you look at the actual price of it it's trading at 205 now the current mark market cap is let's see it's 557 billion dollars so this is a pretty big company but it's nowhere close to amazon right it's a lot smaller than amazon and i think deservedly so but regardless it's right up there next to the market cap of tesla to put that in comparison now if we look at the performance of the stock recently we can look at the one day it's down today we can look at the past month it's down over the past month down almost four percent the past six months it's down 12 not a good performance from alibaba if we look at the past year to date it's down 9.82 percent okay if we look at the trailing one year it's down 18.35 percent now we can compare this to amazon's probably the most similar so we'll throw up amazon amazon is now in yellow and alibaba is in blue and you can look at the comparison here amazon is in the green for the past year about 20 and then alibaba of course is down 18 over the trailing year then we look at the past five years and the differences are even greater amazon has pulled ahead by a huge massive margin right so investors so far have done much better to keep their money in amazon than in alibaba but as investors you can't be backwards looking you have to be forwards looking what is this stock chart going to look like over the next five years that's what we're going to try to look at if we look at just alibaba's stock price here this is really what's made this investment intriguing is the investment has basically flattened out over the past five years not moving too much in fact if we go back to 2018 right it's up like nothing from 2018. this really hasn't moved a whole lot i mean check that out this has been a flat company and as far as the stock is concerned for four years now this this would be uh this would make sense if the company hasn't done anything and really has just been kind of stagnant for the past five years there's some companies that are very mature they're not really growing their revenues and it makes sense for their stock price to mostly just hang around the same point if you have utility companies that are slow moving if you have companies like coca-cola that have a large saturated market they're not really growing that quickly then their stock price makes sense to to hang around the same area and they can dish out dividends that makes sense but for this company it really doesn't make sense because if we look at some information here alibaba has not been the same company it was back in 2015 uh 2018. if we look at this chart here this is the this is from hypercharts by the way it's a cool website there's an affiliate link in the description you can get a discount if you sign up with it but i really do like this website it's one of the rare companies that all uh that all endorse their product but hyper charts has some visuals that i think are pretty awesome this is for alibaba it shows on the trailing 12 month revenue multiple trailing at a 5.2 and then we can look at some information here annual active customers so how many customers they have active every year this is quarter by quarter not year over year so this is every three months they're increasing the amount of customers they have active pretty dramatically they have 466 million active customers 488 million 515 million so on and so forth all the way up to 811 million active customers over the past year in a q4 of their financial year 2021 which is last quarter then if you look at the mobile monthly active users that's even higher because a lot of people in china and around this area shop online on their phone of course now the company again this this chart is not flat even though the share price has been flat since 2018 this has gone up what uh almost double maybe an 80 increase over that amount of time that's pretty that's pretty significant if we look at their revenue segments their core commerce has grown significantly that's the blue lines here you can also look at cloud computing that's a part that's growing as well if we just filter by that it really shows how how much their cloud computing is growing this is crazy growth it's gone up like six times as much over the past since 2018 so the company hasn't remained flat if we look at their digital media and entertainment business this hasn't grown quite as much but again it's growing as well and then other things are growing overall as well but not not quite as nice as the cloud computing and core commerce so the story of this business is that it's growing rapidly and it's in very important segments commerce online shopping cloud computing digital media and entertainment are of course growing industries in a growing economy which is china if we want to give numbers to these visuals we can look right here this is the financial income statement of alibaba on an annualized basis so we're no longer looking at quarter over quarter we're looking on an annualized basis uh here's the annualized graph that paints a nice pretty picture there you can see how rapidly they're growing their revenues and then we look at this it's uh in 2013 they grew 74 and then the the year after i won't say every time but 52 45 27 46 and then back up to 73 in 2018 and then in 2019 40 20 20 they grew 28 and then so far 52 and over the trailing 12 months they've grown 52 percent those are numbers that a a normal startup company would be usually happy to achieve growth rates of 50 but of course this is one of the most massive companies in the world and it's one of the the biggest most important companies in china so again circling back to the stock price here we don't want to just focus on just the stock price because that just shows us where this is traded but you see a discrepancy you see the company growing massively over the past four or five years and the stock trading up sometimes and then trading right back down and a lot of this can accurately and i know i don't like this term because sometimes people use it as an excuse for everything but this is one of the cases where i think fudd fud is the accurate term to explain a lot of this which of course means fear uncertainty and doubt people are fearful they're uncertain and there's a lot of doubt investing in chinese companies and so that's something that i'll get to later in this video but i think that's suppressing the stock price now let's go ahead and move on to one other thing that i want to look at to explain what alibaba is what this company does and the similarities to amazon here's a video from the wall street journal they put this together to compare strategies of amazon and alibaba and so you can see how how they kind of mash up together the chinese e-commerce giant alibaba has big global plans one major goal to deliver goods from china to anywhere on the planet in 72 hours everywhere on the planet in 72 hours everywhere that's one of their main goals so again this isn't just a chinese company that has cheap goods they want to dominate global delivery and you'll see this recurring theme throughout the comparison you might have thought that amazon started off concerned with fulfillment and then they're moving on to other things like they're moving on to sports and amazon prime and music and yada yada no still the same most important thing since the beginning of the company is is the most important right now which is fulfillment and that is where these two companies are competing uh competing with each other i think very fiercely nothing go amazon and alibaba are both looking to capture a larger share of the global ecommerce market which is expected to grow by 1.4 trillion dollars by 2025. it's all execution it's who's faster on the ground it's who's focused just one note when they say a market is going to grow to a certain size you might not know what that actually means what is a market what is a 1.4 trillion dollar market that's how much revenue that total market will take in that is the revenue of that market so if they say the market of cloud computing and cyber security is you know 200 billion dollars that's how much revenue is going to be taken in every year with that market so if they talk about the you know the gaming market is how many billions of dollars that's the amount of total revenue with every company competing in it combined that's what makes the market so a market of 1.4 trillion dollars i think is what they said is incredibly huge that's like a hundred other normal markets put together you know that is a massive market it's it's on the scale where they talk about uh other massive markets that are like in the trillion dollars are autonomous vehicles and stuff of that nature so this is one of those real markets that is an opportunity that obviously has proven to be big in the us but it's going to be big everywhere in the world and fast shipping plus cheaper prices is a big part of winning new customers alibaba's fast delivery service is already gaining traction in european cities and working with western delivery companies as it builds a shipping network different from amazon's alibaba gave us a look at its largest automated warehouse in china as it plans to speed up deliveries around the world you see on amazon on their website how they're boasting about paying everyone 15 an hour right and amazon has gone as far to push and support legislation uh different people that are promoting minimum wage bumps to 15 an hour amazon is supporting that that's why these little guys here in the warehouse they they know that this is the direction things are going there's going to be robots doing basically everything and i think in some regards alibaba is actually ahead in this territory when i look at the comparisons of their their warehouses seems like the chinese ones have a lot more robots in them interesting to see the distinction oversees daily operations in this warehouse run by alibaba's logistics company tanya he says robots here do all the heavy work now now you can this efficiency helped alibaba process 75 billion dollars worth of packages during the company's largest sales event in china last year called singles day which takes place over 11 days e-commerce analysts say this was more than all of e-commerce sales during black friday cyber monday and amazon's prime day combined but alibaba isn't just an e-commerce company it owns a vast empire of other tech businesses and many of those parts help speed up the shipping process so when you buy a product from its retail website alibaba's payment company can process the transaction and then the shipping is handled here this ant group is part of alibaba it's basically a spin-off of it it is the financial group and it's gone through its own struggles it had an ipo planned the government got involved but regardless it's like the fintech portion of it network allows tanya to quickly gather information digitally about your package including the price weight and destination and then send it directly to chinese customs to be cleared for export over the years this process has gotten faster from taking one month to clear a package to now only a few minutes every year we set very aggressive experience improvement targets williams young is in charge of making sure your packages take the most efficient route the company relies on a global network of 3000 partner airlines postal services and other delivery companies to handle the actual transport this allows alibaba to expand its shipping routes with new partners without having to build and maintain its own fleet this is a a notable considerable distinction between alibaba and amazon one of the big differences is that amazon is their their strategy has been to to build out their own fulfillment their own shipping their own logistics they are the ups if you haven't noticed you definitely have noticed so you've probably noticed that more and more of your packages from amazon are being delivered by amazon by actual amazon employees and amazon what are they little you know shipping trucks they're they're more frequently being delivered by amazon and less frequently by ups and different shipping because amazon has made that a big goal to control to have vertical integration or whatever you want to call it of all the logistics from the fulfillment center all the way to the customer's home alibaba has taken a different approach it's very cheap in china to get shipping to just have people do courier services or different things so they have they have taken this approach of just doing the fulfillment having the logistics in terms of shipping be done by different companies the the type of company in china right now as far as i'm aware that has modeled their entire business beginning to end with the logistics like amazon would be more like jd so a lot of people consider jd to actually be the amazon in china but alibaba is similar in different ways just not this particular way we are running more than 80 charter flights every weeks and transfer centers in key markets like russia france spent to allow a very effective final deliveries that's a striking difference from amazon which says it has invested billions of dollars to build its own fleet that includes more than 40 000 trailers and 75 cargo planes amazon is also making a promise for fast delivery but unlike alibaba its speediest service is only available in 21 countries where products can be delivered in a few hours but i think when i look at the difference here i prefer amazon's model because i think overall you have more you have more guarantee over the quality of your service if you're fulfilling it beginning to end so even though they can't expand quite as rapidly as alibaba the actual markets they do have their fulfillment beginning to end i think you'll just be guaranteed faster shipping times better quality they have more control over it customers must pay for a subscription program that can be as low as about 13 or as much as about 130 a year right now alibaba delivers to more than 190 countries but only a few products arrive within 72 hours with no shipping fee so as the company tries to gain traction it says it plans to expand the service to a wider array of products and charge three dollars the company says this service will entice more people to its retail website aliexpress looks very similar to amazon and users can browse more than 100 million items but there's one thing you'll notice as you compare products ecommerce analysts say they are generally cheaper on ali look at the price difference here i'm blocking it with the camera 44 on amazon um 11 to 32 on ali express which is alibaba's e-commerce website so the products many in many cases are significantly cheaper on alibaba's platform express and that's largely because the company has direct access to chinese factories and merchants cutting out the middleman aliexpress is connecting the world consumers with chinese manufacturers that's an advantage amazon doesn't have jeffrey towson runs a market research firm that looks at tech and logistics companies aliexpress is effectively alibaba at its most opportunistic it's trying to do something uh very difficult which is reach the rest of the world's consumers but you come so this seems like what i get out of this is that alibaba has a significant advantage that since china has been the hub of all manufacturing they decided why are we manufacturing for the us and letting them sell our cheap products for way more and take all the margin between when we can come up with our own amazon and sell directly we can undercut amazon's pricing because we're the manufacturer we do it we have we have the vertical vertical integration right we're the ones making these products so we can cut out amazon the middleman we can undercut their pricing and sell it directly that is a significant advantage that alibaba has and i don't think that a lot of people realize this is going on that alibaba is leveraging these type of advantages that they do so much manufacturing they can literally cut out so much of the price while still maintaining high margins to deliver any product from its website anywhere both companies will have to tackle one of the most challenging issues for any delivery company the last mile e-commerce analysts say this step represents about 50 of the total cost of a delivery because that's been hard to automate and requires manpower so alibaba is testing a new system the company calls this a post office but instead of a mail carrier there are self-driving robots alibaba says one delivery robot can carry 50 packages at once and can trim cost and time amazon said i'm telling you i think in like two or three years we're going to see these dumb things everywhere they're going to be all over your neighborhood driving down the sidewalk in the bike lane you're going to see these type of robots they already have a bunch of them being tested for dominoes and different pizza delivery companies there's a lot of different companies that are that are trying to figure this out i was reading about different ones that are trikes three wheelers that go a top speed of like 15 miles an hour they can have people take over them remotely so if the robot runs into an issue like a curb or something it can't get over then somebody can take over like a a pilot flight uh flying a drone and literally start controlling it like they're playing a little video game right i just think that these things eventually are gonna be sorted out you're gonna see these type of things everywhere it's also committed to transforming its transportation network so it's conducting trials to improve the last leg of the journey like testing drones that it says could deliver packages within 30 minutes of an item being ordered the push to gain more traction in the global ecommerce market could push the two tech giants to improve their systems even more and that could mean that the next item you buy gets you even faster so there's a quick look at the two companies and the similarities and differences between how they run their business their expansion plans how they're doing fulfillment the prices they're charging it gives us some good look at the qualitative differences and similarities between the two but there's more to the story than that when i'm looking at companies i want to invest in in my portfolio this is the story fund it is an aggressive growth center portfolio where i invest in companies that are growing their size their revenue quite rapidly i'm not focused so much on their profitability because these companies are in the early stages of their development i'm invested in amazon this is one of my holdings i'm considering buying alibaba so that's the reason that i'm looking at this company but we can't just look at the qualitative look at the companies we can't just look at the qualities we have to compare the numbers together if we look at amazon for instance this is very similar to alibaba except one of the differences that they didn't mention is that amazon is much bigger they're a much more big successful company than alibaba so it makes sense that their market cap is much higher as well in fact a lot of people don't realize i think the full difference in scale between amazon and alibaba if we look at amazon's numbers here the total revenue for amazon last year was 386 billion dollars that's roughly four times the amount of alibaba that's incredible and their revenue growth by the way it's not as fast as alibaba's we can look at alibaba's here the revenue growth of alibaba is very fast but amazon's is not too shabby they're growing their revenue pretty quick if we look at their revenue growth over the past couple years it's not like 50 and 60 percent but it's 30 uh 20 in 2019 and then in 2020 it's 37 that's pretty fast and then the trailing 12 months revenue growth for amazon is 41 that is very fast for the size of this company they're already much larger than alibaba to give another visual to how much bigger amazon is than alibaba in terms of revenue we can do a direct comparison here amazon's revenue is in blue alibaba's in red and this is a quarter over quarter since the beginning of 2017. so in 2017 q1 amazon revenued 35 billion and alibaba revenue to 5 billion and last quarter 2021 last quarter amazon revenued 108 billion dollars alibaba revenued 28 billion so even though alibaba is indeed growing faster than amazon it needs to be said that amazon already has a massive lead in terms of total revenues that is something you have to factor in if alibaba makes it to the size of amazon which i think they they will eventually what will their growth rate be at that time it might be similar to amazon's or it may be slower or faster we don't really know but amazon is already there and we know that amazon is still successful despite already being this big which is pretty incredible so that's one comparison that i want to highlight between the two amazon is bigger they're growing a little bit slower but they're still growing very fast for the size of their company alibaba is quite a bit smaller but growing roughly maybe 70 or 80 faster than amazon so not quite double the speed but quite a bit faster if we look at some other things we can mention alibaba has well amazon has its troubles with the government right congress wants to you know they want to show that they're not being bullied by big companies and they want to stand up to big companies this is politicians come on they have to go back to their constituents and say look i stuck it to jeff bezos right everybody hates the billionaires and i went and stuck it to him that's what our politicians like to do but a lot of our our politicians they back they they talk a lot they don't do much at the end of the day they don't do anything that really would devastate amazon and i haven't seen anything so far that would be too devastating to amazon there's one bill that if it really got passed and con you know went through the whole process of the government through senate and got uh signed and everything that they would have to separate their businesses that could cause trouble for amazon but i think that that has difficulty so amazon does have some government issues but they have to go through the american congress and the you know the executive branch and through the judicial branch and everything within the u.s government over in china it runs a little bit differently when the chinese government wants to enact something it's like one guy just making a decision and they just enact it they do it right away and that's what we've seen with china running alibaba is these companies are becoming very big and powerful in china they have a lot of political influence and because of that it seems like the authoritarian government in china does not like that and they're more than willing to how do i put this nicely they're more than willing to damage their own companies in their own country even their flagship leading companies in order to show that they're in power the chinese government is more than willing to do that and they've done that time and time again there's headlines after headlines after headlines of the chinese government sticking it to their best companies and i've noticed a trend other people have pointed this out as well that china seems to be more uh critical of companies that are traded on u.s stock exchanges like alibaba and jd and these other companies right we have ones like this dd they they took the app off like a month after ipo the stock price tanked revenue was down this is a big hit for this company there's so many articles like this with the government in china sticking it to these to these type of companies so this is a risk and a lot of people are concerned about it what will china do with the investment in alibaba right if you have your money invested in this company you're putting some of your money at exposure to potential damage done by the chinese government and it's up to you to decide the extent of what the chinese government is able to do with their companies in in preventing them from growing or that type of thing but i think there's there's good arguments for both sides now finally let's go ahead and look at valuation in my opinion i don't think that alibaba is at such a huge discount that a lot of investors try to make it out they try to make alibaba look like it's the biggest deal right it's a steal right now compared to amazon i don't really consider it a still right now compared to amazon if we look at morningstar they consider alibaba a four-star stock which means that there is value there they think that it is undervalued by 34 they say the fair value is 313 and it's currently trading somewhere around 205 dollars so there's obviously value in alibaba and i think the longer the company grows and the lower the price goes the bigger this discrepancy the more value there is so at some point typically stocks trade to their fundamentals they don't veer off from their fundamentals indefinitely and never return if alibaba continues to grow at these insane rates that they are it's just a matter of time until this evaluation comes back it's just never going to stay away from this valuation forever i just don't see that happening um if we look at amazon's valuation for comparison they're a three-star stock they're still undervalued right the fair value for amazon is 4 200 and they're currently at 3 700 so uh morningstar's estimates aren't perfect this isn't like it's written in stone but i think this gives you an idea that amazon's probably undervalued but there's less fud priced into amazon stock there's less fair uncertainty and doubt priced into amazon because it's hair right in the u.s people are familiar with it investors don't have to concern themselves with the chinese government so the way to look at these two investments are i think they're both good opportunities obviously i think amazon is one of the best opportunities in the market right now that's why i have it as part of this portfolio it's one of my largest holdings right now so amazon i think is a fantastic opportunity that doesn't have as many unknowns as alibaba but when i look at alibaba i also have to say i think this is a good opportunity even factoring in the chinese government when i look at growth rates like this this type of chart here when i view this type of growth rate when i view these real revenues and the things that alibaba is doing it's only a matter of time until i think the stock price catches up or it moves along with this type of revenue growth this can't happen forever and the stock continues to just stay flat it would just be ridiculous after a few years of this happening so eventually i think the stock will move up to reflect the growth of this company the value that it's bringing to the shareholders in terms of revenue growth future profitability all those type of things as alibaba grows and they have their fulfillment all throughout the world and they expand into different countries they they use the advantage of their own own not fulfillment centers but their own manufacturing within china i think there's a lot of upside for this company so that's my that's my view on this i think that alibaba is a good deal do i think it is way better than amazon i don't really think so i think both of them are good deals i think the alibaba will likely trade at a discount to amazon for the foreseeable future but i cannot see this company trading down too much in the future based off of uh its revenue growth i just don't think it will happen forever so as of right now i have not decided to include alibaba in my portfolio that's not really because i think it's a bad deal or i don't think it's worthy of being in this portfolio the reason why is i have a lot of companies in this portfolio and so i have alibaba on the watch list if any of these don't work out and i think you know i see alibaba as a better opportunity than this company then i'll swap them out i'll sell out of one of these companies introduce alibaba and hope that if i hold it long enough the fundamentals will continue to go up and eventually the fair uncertainty and doubt that follows alibaba will dissipate over time and that difference between the fundamentals of the company and the valuation will converge together so that will be what i what i do in the future but i don't plan on adding it as an additional holding because if you can see i already have a lot of companies now that's my thoughts overall that's a quick update on the story fund i hope you enjoyed the video i hope this was helpful if you did like this video be sure to subscribe to the channel also just a note for people that are not aware of this which i think most of you are but i have another entire channel where i go over a different portfolio which is my passive income account this is one where i talk about not growth companies but dividend paying more more mature uh companies that pay out a lot of cash flow and dividends and this portfolio has been very successful so i have a i have a link to that channel in the description of this video if you're interested in subscribing to that one and viewing that one as well but i figure because there's probably some people that don't they're not aware that i have two channels but anyways thought i'd mention that hope you enjoyed the video i'll see you next time

Channel: Joseph Carlson After Hours

Views: 25,559

Rating: 4.9114799 out of 5

Keywords: The Joseph Carlson Show, investing, stocks, stock market, dividends, portfolio update, m1 finance

Id: bUzAlF-tgnY

Length: 32min 13sec (1933 seconds)

Published: Tue Jul 13 2021