When it comes to the Alibaba vs Amazon topic, both companies and most investors would probably agree that the two online retailers are very different. Not only is one in China and the other in the U.S., but there are many other differences as well. Still, the two have relatively similar market capitalizations, at $454.9 billion and $462 billion, respectively.Thus, it should come as no surprise that some investors considering the Alibaba vs Amazon question are thinking about which will reach a $1 trillion valuation first. In a post for Seeking Alpha, analyst Sam Lin explained why he thinks Alibaba will beat Amazon in the race to become a $1 trillion company.
In a recent study, he discovered that Alibaba is under-owned by both exchange-traded funds and active portfolio managers. Amazon, on the other hand, is a core holding in both passive and active funds. It’s also one of the stocks in the most recent acronym of core tech holdings: FAANG, which stands for Facebook, Amazon, Apple, Netflix and Google/ Alphabet.
When looking at the comparison of Alibaba vs Amazon, Lin noted that passive and active funds devote large percentages of their portfolios to the latter, but even those that own Alibaba shares devote small percentages of the portfolios. One of the main reasons for this is the fact that Amazon is in the S&P 500, while Alibaba is not. Passive funds in particular track certain benchmarks such as the S&P 500, but even active funds may sometimes use benchmarks like the S&P as a loose guideline for determining which stocks to own.
Lin also feels that Alibaba’s demographics are “more favorable” because the company targets China, which not only has four times as many people as the U.S. but also is a widely-discussed growth story around the globe.
He argues that even though one Amazon client in the U.S. isn’t worth as much as one Alibaba client in China due to the dramatic differences in per capita income, China’s strong growth makes it a more attractive target market than the U.S., especially given its much larger population. He estimates that China is four times as large as the U.S., although Chinese consumers shopping on Alibaba spend a third as much as U.S. consumers shopping on Amazon. Further, he notes that this doesn’t include other markets outside of China where Alibaba’s presence is bigger than Amazon’s.
Lin also pointed out that e-commerce is even bigger in China than it is in the U.S., and Alibaba has more of a choke-hold on China than Amazon does on the U.S. Further, he argued that as far as diversity goes in the competition of Alibaba vs Amazon, the former is more diverse than the latter.
Shares of Alibaba rose by as much as 2.45% to $177.86, while Amazon stock was little changed at $959.27 on Tuesday afternoon.