- Amazon has been a bullish beast, but risks are mounting
- Alibaba reflects the Chinese economy
- The “phase one” trade deal and the addressable market says Alibaba has lots more upside
Amazon.com, Inc. (AMZN), and Alibaba Group Holding Limited (BABA) are both highly successful e-commerce businesses. As of January 10, AMZN had a market cap of an astounding $928 billion at a share price of $1883.16. On the same day, BABA’s market cap was $598 billion at $223.83 per share. Anyone who invested in either of the companies in the early days made a mint. Jeff Bezos, the founder of AMZN, was the richest man in the world in 2019, with a net worth of over $110 billion. He started the company as a bookseller. His net worth dropped after a recent divorce. However, that did not change his status as the wealthiest human on the face of the earth.
Jack Ma was the wealthiest person in China, with a net worth of $38 in 2019. Before he became an entrepreneur and the co-founder and face of BABA, Mr. Ma was a lecturer in English and international trade at a Chinese University. He applied to Harvard Business School on ten occasions and had a perfect record of rejections.
AMZN and BABA are two of the world’s best-performing businesses. As we head into a new decade, given a choice, I favor BABA over AMZN when it comes to the potential return over the next ten years.
Amazon has been a bullish beast, but risks are mounting
Amazon first went public in 1997 at an IPO price of $18 per share. While the stock had a rocky period during the dot-com crash, the stock has been a rocket ship on the upside.
As the chart highlights, the split-adjusted low as in $1.31 per share in May 1997. The high came in September 2018 at $2050.50. AMZN was trading at $1883.16 at the end of last week.
Over the past four quarters, the company has beat consensus earnings estimates twice and missed twice.
(Source: Yahoo Finance)
Even with the miss in Q3, AMZN earned $4.23 per share, which was only 39 cents below the estimate. A survey of 45 analysts on Yahoo Finance has an average target for then shares of $2170.22, which is above the all-time high. The range for projections is from $1850 to $2550 per share. AMZN was trading at the low end of the range as of January 10.
Amazon faces mounting risks as the company is in the crosshairs of the government and regulators. The company has created a franchise that many legislators believe borders on a monopoly. The risk of fines, or even a breakup of Amazon over the coming months and years, has increased with its success. Amazon has been one of the best-performing companies in the world and has made Mr. Bezos a fortune. With a twelve-digit net worth, both AMZN and Jeff Bezos are in the crosshairs of potential regulatory changes in the 2020s, which could weigh on the stock price.
Alibaba reflects the Chinese economy
On September 18, 2014, Alibaba’s IPO was at $68 per share. BABA shares opened at $92.70 on the day of the IPO and rose to a high of $120 in November 2014. Source: Barchart
The chart shows that the stock fell to a low of $57.20 in September 2015, and rose to a peak of $225.96 last Friday, on January 10, 2020.
(Source: Yahoo Finance)
BABA has beat consensus earnings estimates over the past four consecutive quarters. The latest earnings for Q3 2019 were $1.85 per share, 35 cents above the consensus estimate. An average of 47 analysts on Yahoo Finance has a price target of $23.75 per share, which was just above the price of the stock last Friday. The range is from $169.40 to $284.95 per share.
BABA shares have made higher lows since late 2018. The sluggish Chinese economy weighed on the price of the stock. In December 2018, BABA hit bottom at $129.77 per share. On May 31, 2019, the low was $147.95, and on August 5, the stock reached its most recent nadir of $151.85. The prospects for the end of the trade war between the US and China ignited the shares as BABA’s earnings are a function of Chinese economic growth.
The “phase one” trade deal and the addressable market says Alibaba has lots more upside
On January 15, the US and China will sign the “phase one” trade agreement. The deal will pave the way for negotiations for “phase two” and a comprehensive agreement between the two nations.
I believe that BABA will outperform AMZN in 2020 as progress on trade between the US and China will turbocharge BABA’s earnings over the coming year. An addressable market of 1.4 billion people in China is a compelling reason for the company’s profits and share price to continue to rise. When it comes to AMZN, 2020 could be a tricky year. The company’s fantastic success is the reason why it now borders on a monopoly, which creates more than a few risks in the coming years.
AMZN shares were trading at $1,894.37 per share on Monday afternoon, up $11.21 (+0.60%). Year-to-date, AMZN has gained 2.52%, versus a 1.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with ETFDailyNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
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