Chinese e-commerce giant
Alibaba (NYSE: BABA) reported an impressive 30% jump in revenue year over year and a solid beat on analyst expectations for their EPS in their fiscal Q2 earnings report yesterday. Shares had been on a rip through last week and trading at all-time highs, having run 20% since September alone. For an $800 billion company, their shares sure can move. That being said, a little bit of weakness has crept in over the past week and as Wall Street digested their quarterly numbers yesterday, shares found themselves down by as much as 5% before recovering slightly into the close.
With investors less than impressed with Alibaba’s most recent numbers, is there more opportunity to be had from the likes of Amazon (NASDAQ: AMZN)? Or is it merely a little bump on their seemingly continuous march higher?
Similar Revenue Growth
Before we go too far down that road, let’s contrast their numbers with those of their closest competitor who reported their Q3 earnings last week. Jeff Bezos’ $1.5 trillion behemoth came in hot with 37% growth in revenue compared to the same quarter last year which was well above the consensus and EPS that was about 50% higher than expected. Operating income was close to 30% higher than the consensus and forward guidance from management was also super bullish.
For all that though, Amazon shares still fell 7% over the following two sessions despite posting solid numbers. It’s easy to draw some comparisons to how Alibaba’s are acting and it will be interesting to see if they follow Amazon stock back up into next week. Luckily, for investors considering which horse to back in the e-commerce and cloud computing space, there are plenty more factors to consider.
Over the past two years, the share performance from each has been fairly neck and neck, with both up around 90%. Now, the further back you go the more Amazon starts to outperform by significant margins, but given the pace at which these companies are innovating and investing, it’s reasonable to focus on more recent performance and momentum when sizing up a current decision. With that in mind, we see that over the past twelve months, Amazon shares are up 86% compared to Alibaba’s 54% while the latter has all but closed the gap when we look at just the past six months.
Cloud Computing Performance
So with them both fairly close together in terms of quarterly growth numbers as well as share performance, where else can we look to find an edge? One area to explore is in their segment specific growth, particularly in high margin segments like cloud computing. While still a fraction of the revenue from retail, this is the one area where neither side wants to be seen as lacking, given cloud computing is forecasted to become the major revenue stream over the coming years.
When we look at the numbers from the recent earnings report, there’s one clear winner. Amazon Web Service’s (AWS) reported year over year growth of 29% but Alibaba’s cloud computing division was up an impressive 60% on the year. Alibaba management also let investors know that they expect their cloud computing division to become profitable for the first time this year. This is an important distinction given it means that they still realized a loss, whereas Amazon’s are making money from AWS, but for investors who are thinking of the long term potential, that kind of growth can be very appetizing.
Earlier this year, Alibaba management announced plans to invest upwards of $30 billion in that division alone over the next three years as they build out their arsenal to take on AWS. They’re by far the market leader in China but lag Amazon globally. However this is where the battle for market dominance will likely be fought and decided as we head into a new decade.
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