Watch Out Alibaba: Amazon Launches Prime Service In China

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Alibaba will now face an increased threat from Amazon in its home market. The U.S. firm has started offering its Prime free shipping service in China, ratcheting up attempts to compete with the China-based e-commerce giant for the increasing number of shoppers who are buying overseas goods, reports Bloomberg.

Amazon starts Prime Service in China

Amazon said in an emailed statement that Chinese Prime subscribers will get free shipping on millions of eligible overseas goods on orders exceeding 200 yuan ($29.50) starting Friday. Membership is priced at 388 yuan a year for Chinese consumers, which is less than the $99 U.S. fee. Domestic products will be delivered free of cost. The U.S. firm did not mention whether Chinese Prime subscribers will get access to online music or videos.

With access to a growing library of music, books and videos and free deliveries, Amazon Prime has influenced more than 65 million users in the U.S. since its inception in 2005. Now the U.S. company, which so far has made little progress against Alibaba, is now concentrating on the increasing demands of growing middle class consumers who are seeking higher-quality goods from overseas.

Amazon said its global logistics network will handle shipping and final deliveries to every Chinese consumer.  The U.S. firm added that the packages are expected to arrive within five to nine days in 82 cities across China, with single orders of more than 2,000 yuan taking extra time, notes Bloomberg.

Alibaba has 30% more upside

In just a few days, Alibaba will report its fiscal second quarter financial results. Citigroup analyst Alicia Yap raised her price target for the Chinese firm from $112 to $133. She predicts that the U.S.-listed shares, which have climbed 26% over the last 12 months, will jump another 30% over the next year, according to Barron’s.

In a sum-of-the-parts analysis, she values Alibaba’s core commerce business at $106.17 a share and cloud computing segment at $6.80 share. She values strategic initializes at $5.96, digital media and entertainment at $3.09 a share, and Ant Financial and other holdings at $10.37 a share.

“We have adjusted our FY2017E and FY2018E revenues/non-GAAP EPADS by -1%/-6%, 0%/-4%, respectively incorporating potential higher expenses from: 1) stepped-up video content investment; 2) Tmall Supermarket promotion and higher Singles’ Day spend; and 3) slower profitability timing for Cloud business due to the latest price cut strategy,” Yap said.

When Alibaba reports its fiscal second quarter results on November 2, Yap expects to see 51.7% growth in revenue, with China retail increasing 41%. Also she sees EBITDA increasing 32%.

A few days ago, Goldman Sachs analyst Piyush Mubayi listed Alibaba’s stock as his favorite Chinese Internet play. Additionally, JPMorgan analyst Alex Yoo predicted a better than 52% climb in revenue.

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