Why Investors Value Alibaba Revenues WAY Higher Than Amazon

Print Email

The competition is heating up between Amazon.com, Inc. (NASDAQ: AMZN) and Alibaba Group Holding Limited (NYSE: BABA) to find out which will control the e-commerce space online. While Amazon is worth roughly double Alibaba in terms of market cap, investors seem to be valuing Alibaba on a much different scale than Amazon.

24/7 Wall St. has included some highlights from the recent earnings reports of these companies as well as some other metrics to paint a picture of how these e-commerce juggernauts measure up.

Amazon

This e-commerce empire reported its second quarter results as $5.07 in earnings per share (EPS) on $52.9 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $2.50 in EPS on $53.27 billion in revenue. The same period from last year had $0.40 in EPS on $37.95 billion in revenue.

In terms of its other segments Amazon reported:

  • North American net sales increased 43.8% to $32.17 billion, with operating income of $1.84 billion.
  • International sales increased 27.2% to $14.61 billion, with an operating loss of $494 million.

Amazon’s Web Services (AWS) continued to boom increasing 49% year over year, making the case that Amazon is more of a tech company than an e-commerce site.

Currently Amazon trades with a price-to-sales (P/S) ratio of 4.5 for the trailing twelve months.

Shares of Amazon last closed at $1,905.39, with a consensus analyst price target of $2,108.95 and a 52-week range of $931.75 to $1,925.00. Amazon has a market cap of roughly $929 billion.

Alibaba

The Chinese e-commerce giant posted $1.22 in EPS and $12.23 billion in revenue, compared with consensus estimates that called for $1.21 in EPS and revenue of $11.8 billion. In the same period of last year the company reported EPS of $1.15 and $7.29 billion in revenue.

In terms of its segments, the company reported as follows:

  • Core Commerce revenues increased 61% year over year to $10.46 billion.
  • Cloud Computing increased 93% to $710 million.
  • Digital Media and Entertainment increased 46% to $903 million.
  • Innovation Initiatives increased 64% to $160 million.

Alibaba has a P/S ratio of 12.2 for the trailing twelve months. This is nearly three times the size Amazon’s P/S. So what does this mean? Basically Alibaba trades at a premium to Amazon, and even looking at the price-to-earnings ratio this is evident but for companies with such high P/E ratios (Alibaba 29.8 and Amazon 110.2) it’s not entirely relevant. What this P/S ratio is saying is that for every dollar of revenue that Alibaba pulls in, it is worth almost three times as much (reflected in the price) as a dollar of Amazon revenue.

Shares of Alibaba closed Friday at $174.23, with a consensus analyst price target of $234.17 and a 52-week range of $164.25 to $211.70. Alibaba has a market cap of $448 billion.