Nasdaq BABA Alibaba

Given its massive success, investors around the globe have been searching for the next Amazon (NASDAQ:AMZN) for years. The company has grown into a massive e-commerce powerhouse since its beginning as an online purveyor of books in 1994, and many others are trying to repeat this success. In this piece, we used TipRanks' Comparison Tool to evaluate two Asian e-commerce stocks — Coupang (NYSE:CPNG) and Alibaba (NYSE:BABA) — to see if either could become the next Amazon.

Coupang, which dominates the e-commerce market in South Korea, and the Chinese e-commerce giant Alibaba, both look promising on a long-term basis, although only one deserves a bullish view right now.

Coupang

Coupang is an unprofitable company in a high-growth stage, although there is some evidence of a path to profitability. Additionally, its stock has shown signs of a reversal. Although Coupang shares are down roughly 34% year-to-date, they are up about 2% in the past six months and up more than 17% over the past month, showing a shift in momentum. For these reasons and others outlined below, a bullish view may be appropriate for Coupang.

As far as valuation, Coupang trades for about 1.5 times price/sales, which is off its peak of 5.2 times at the time of its initial public offering. Of note, Amazon's price/sales multiple is around 2.4 times, while Alibaba's is around 1.8 times. All these e-commerce companies' multiples have trended steadily downward throughout 2022.

While Coupang is still unprofitable, it's important to point out that its adjusted EBITDA is now positive, a major step in the path to profitability. The company's management has also made profitability a primary focus in the near term, so investors may not have to wait much longer for Coupang to turn a profit.

During the second quarter of 2022, the company reported that its gross profit margin improved 250 basis points quarter-over-quarter. The company also reported an adjusted EBITDA of $66 million and total net revenue of $5 billion, an increase of 12% year-over-year or 27% in constant currency.

Coupang's gross profit jumped 75% to $1.2 billion on a year-over-year basis — a new record. Its net loss improved by $134 million quarter-over-quarter to $75 million. In his year-end 2021 letter seen exclusively by ValueWalk, Lee Ainslie of Maverick Capital explained why gross profit is the best metric to evaluate Coupang's progress. It captures the company's unit economics and gross merchandise volume: both essential measurements on the march toward profitability.

Profitability is a huge concern for Wall Street right now, so the rebound in Coupang's stock price despite its lack of profitability is huge. A general consensus of analysts suggests the South Korean e-commerce major could see its final loss in 2023.

Is Coupang the Next Amazon?

One of the things that makes Amazon so hugely profitable is the revenue streams in addition to its e-commerce business. Due to those other revenue streams, the razor-thin e-commerce margins are of little consequence. As Coupang has taken a few pages out of Amazon's playbook, it looks like it could be the next Amazon.

Coupang appears to be following a similar strategy as it diversifies its revenue streams. Not only is it expanding its e-commerce business into other Asian markets, including Singapore and Japan, but it has also launched other services similar to what Amazon has done.

For example, Coupang is becoming vertically integrated by covering delivery, including its Rocket Delivery service, which lands packages on customers' doorsteps the same day or early in the morning, even if the items were ordered as late as midnight. In fact, Coupang's average delivery time is less than 12 hours, and 99% of its orders are delivered within a day, putting it ahead of Amazon in this area.

The company's Rocket Fresh service is South Korea's biggest grocer and offers fast grocery delivery. Coupang Eats mimics Uber Eats and was South Korea's most-downloaded app at the height of the pandemic in 2020. Coupang Play is the company's take on Amazon's Prime streaming service, including offering its own content, while Coupang Pay covers the fintech angle.

What is the Price Target for CPNG Stock?

Coupang has a Moderate Buy consensus rating based on six Buys, two Holds, and one Sell assigned over the last three months. At $23.99, the average price target for Coupang implies upside potential of 24.9%.

Alibaba

While Alibaba is significantly larger than Coupang, it shares many similarities with its smaller South Korean peer. As a result, a bullish view would be appropriate for the long term, but since China's zero COVID policy is taking a bite out of Alibaba's current results, a neutral view appears appropriate for now.

A review of Alibaba's stock price action reveals Wall Street's hesitancy on it versus the momentum Coupang has picked up. Shares of Alibaba are off almost 30% year-to-date, with most of that coming in the last six months and more than one-third of that decline coming in the last 30 days.

In terms of valuation, Alibaba trades at a forward P/E of 11.1 times and a price/sales multiple of around 1.8. Like Coupang's, Alibaba's P/S multiple has been marching steadily downward since its IPO in late 2017, when it stood at around 12 times.

The e-commerce giant's P/E enjoyed a recent peak of around 21.7 times in July 2022, following its previous peak of around 35 times in October 2020. As a result, this could be an attractive entry point for Alibaba, but the stock could continue to decline in the near term, presenting even better entry points.

Is Alibaba the next Amazon?

In some ways, Alibaba has already arrived. With $30.7 billion in revenue for the June 2022 quarter, Alibaba is already a monster-size e-commerce name, although not as big as its U.S. peer. Unfortunately, it faces an uphill battle right now due to China's zero COVID policy, which has taken a bite out of the e-commerce giant's earnings numbers.

What is the Price Target for BABA Stock?

Alibaba has a Moderate Buy consensus rating based on 18 Buys and one Sell sell assigned over the last three months. At $148.47, the average price target for Alibaba implies upside potential of 75.5%.

Conclusion: Bullish on CPNG Now, Bullish on BABA Later

Alibaba and Coupang have both taken some pages out of Amazon's playbook, diversifying into many of the same revenue streams. Clearly, this business model with these specific revenue streams works well for e-commerce companies. Given current valuations and momentum trends in the market, a bullish view looks appropriate for Coupang now, with a neutral view for Alibaba for now—probably developing into a bullish view whenever China's economy recovers.

Disclosure

Alibaba (BABA) closed at $80.45 in the latest trading session, marking a +0.58% move from the prior day. This change lagged the S&P 500's 2.59% gain on the day. At the same time, the Dow added 2.66%, and the tech-heavy Nasdaq gained 0.07%.

Synchronoss Technology SNCR is benefiting from an expanding partner base and customer base, driven by strong demand for its cloud-based solutions.Partnerships with the likes of Alphabet GOOGL and Alibaba BABA for its personal cloud and email suite services have been aidin

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Chinese tech behemoth Alibaba (NYSE: BABA) has had a rough couple of years. Just when it seemed that its regulatory woes were in the rear-view mirror, the resurgence of COVID-19 in China and the troubling worldwide economic situation have thrown a wrench in its plans for a comeback. Nevertheless, BABA operates a highly-diversified tech business with a massive growth runway across most segments. Still, it's tough to feel upbeat about its prospects, at least in the near term.

Hence, we are bearish on BABA stock for the short term.

As mentioned earlier, BABA stock has been under major duress over the past couple of years. It's faced massive disruption amid the crackdown by the Chinese government. Fast-forward to 2022, and you have a potential recession on the horizon.

Stock markets have tanked since the start of the year as the world economy deals with many problems. Particularly in China, the coronavirus outbreak in major cities, including Shanghai, has significantly affected the Chinese economy. 

Moreover, the impact of the COVID-19 resurgence has been clearly reflected in the company's first-quarter results, which we will dive into later in the article.

Nevertheless, I feel that the current bear market is an incredible opportunity to pick up BABA at multi-year lows for the long term, even though it's likely not great for the short term. As the Oracle of Omaha Warren Buffet puts it, "be fearful when others are greedy and greedy when others are fearful."

Bleak Earnings Performance

Alibaba reported its second-quarter results, and headline numbers were remarkably underwhelming. Revenues of $30.7 billion remained flat year-over-year, mainly due to the drop in sales from the China commerce segment. Moreover, operating income and adjusted EBITA figures dropped by 19% and 18%, respectively. Also, non-GAAP net income declined by 30%. Perhaps the brightest spot for the company was a 10% improvement in Cloud revenues. However, it forms just 9% of the company's sales.

Its Chief Financial Officer Toby Xu states that the company did relatively well despite the macroeconomic challenges. He states, "We have narrowed losses in key strategic businesses, given ongoing improvements in operating efficiency and increasing focus on cost optimization."

Another positive is its strong liquidity positioning. Free cash flow from the second quarter came in at a spectacular $3.3 billion, a 7% improvement from the prior-year quarter. Net cash from operating activities was $5.1 billion, a 1% increase from the same quarter last year, while its cash balance stood at an amazing $69.1 billion.

Alibaba Cloud vs. Amazon Web Services

As discussed earlier, the only bright spot for Alibaba was the 10% improvement in revenues it generated in its Cloud segment. Alibaba has been quickly growing its market share in China, and its cloud segment has been one of the most consistent segments for the company. However, its growth trajectory is comfortably dwarfed by Amazon's (NASDAQ: AMZN) Amazon Web Services (AWS).

AWS has been a key contributor to Amazon's top-line expansion over the past several quarters. It generated a tremendous $19.7 billion in sales for the firm in the second quarter alone, indicating a 33% improvement on a year-over-year basis. AWS's contribution to Amazon's total sales is at roughly 16% and is expected to rise to over 20% within the next couple of years.

Conversely, Alibaba Cloud generated $2.6 billion in sales during the second quarter, showing 10% growth on a year-over-year basis. Cloud sales represented just 9% of Alibaba's total sales, while its core business constituted a dominant 76% market share.

Needless to say, Alibaba has a lot of catching up to do regarding its Cloud business. AWS is growing significantly quicker than Alibaba Cloud and holds a dominant position in the market. AWS is ranked the number one global cloud service while Alibaba is at a distant fourth, with just a 5% market share.

What is the Target Price for BABA Stock?

Turning to Wall Street, BABA stock maintains a Strong Buy consensus rating. Out of 18 total analyst ratings, 17 Buys, zero Holds, and one Sell rating were assigned over the past three months. The average BABA price target is $156.12, implying 97.3% upside potential. Analyst price targets range from a low of $130 per share to a high of $205 per share.

Conclusion: BABA Continues to Face Headwinds

Alibaba's recent quarterly performances have been disappointing, with near-term prospects remaining bleak. Like other tech companies, it faces several headwinds that continue to weigh down the stock. Consequently, its stock has taken quite a beating, and it now trades near all-time lows.

However, it isn't the end of the world for the company. It still has plenty of growth catalysts, including its Cloud business which could become a cash cow down the road. Still, it's still far from reaching its true potential in the space.

Hence, BABA stock is arguably an unattractive short-term bet, especially for those unable to stomach the volatility. The stock market isn't going to take too kindly to upcoming earnings misses, which seem likely given the current circumstances. It will take a while before BABA stock can return to its winning ways.

Disclosure

ContextLogic (NASDAQ: WISH), the parent company of online marketplace Wish, went public in December 2020 at $24 per share. Its stock hit an all-time high of $31.19 last February but now trades at less than $1.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Alibaba (BABA) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

The odds might not be in favor of Chinese tech behemoth Alibaba (NYSE:BABA) right now, but the tides may turn soon. Its recent $1 billion investment in its cloud business might help Alibaba balance the e-commerce woes until the latter gets back on its feet again.

Given that over the past few years, Alibaba’s cloud business has quickly emerged as a major revenue driver, emphasis on this business may help solve some problems for the company. It is worth noting here that Alibaba Cloud was the world's third-largest provider of public cloud service, as of 2021.

Alibaba's Billion-Dollar Resurrection Plan

Alibaba recently pledged $1 billion for a “global partner ecosystem upgrade,” which involves funding the technological innovations of global partners handling the sales, tech support, and customer service areas of the company’s worldwide cloud business. This may help uplift the thriving business, which is facing some headwinds currently.

The growing national security trust issues between China and the U.S. have driven several customers away from the Alibaba Cloud in favor of foreign servers. Even the Chinese short-video posting platform TikTok moved its data to Oracle servers to avoid regulatory scrutiny in the future. This makes us think that the investment might have been part of Alibaba’s efforts to retain its existing partners and even attract more partnerships and adoption.

The threat to Alibaba’s footing in the global cloud market can be mitigated via this investment. Importantly, Alibaba Cloud’s 11,000-strong partner roster includes U.S. tech giants Salesforce (NYSE:CRM), VMware (NYSE:VMW), Fortinet (NASDAQ:FTNT), and IBM (NYSE:IBM). This gives us a deeper insight into why Alibaba needs to up the ante in partner retention efforts.

Additionally, current trends in Alibaba’s core e-commerce business are not so encouraging. Overall, consumer demand has slowed considerably and is expected to remain so for some time. So far this year, Alibaba’s shares have lost 33%. Multiple headwinds played a part in the decline, including China’s zero-tolerance policy to control the resurgence of COVID, inflation, trade hostilities with the U.S., fear of getting delisted along with other Chinese stocks, etc.

Even now, the outlook for China’s economic growth is dim. Goldman Sachs recently sharply trimmed its 2023 growth forecast for China to 4.5% from 5.3%, citing continued COVID-Zero policies in Beijing at least until the first quarter of 2023 ends.

Therefore, the next best thing for Alibaba to do is take its cloud business up a notch to balance the weakness in e-commerce. To that end, the investment may be a great stepping stone. Although the company heavily relies on its e-commerce business for revenues, a meaningful and growing part of its revenues comes from its huge cloud business, which has managed to compete for head-on with the likes of Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ:MSFT).

Is it Safe to Buy Alibaba?

All things said, Alibaba is a safe investment option.

Alibaba’s three retail segments contribute more than 50% of overall retail sales in the vast economy of China. So, as the economy recovers (which it will, like it does after every market cycle), this part of the business should be the first to rise.

Moreover, the global $1 billion cloud program is expected to boost its footing in the global cloud market. Interestingly, the global cloud computing market is still growing and is expected to reach $480.04 billion by the end of this year, according to Fortune Business Insights. Remarkably, by 2029, this number is likely to increase to $1.712 trillion. Alibaba’s stronghold is only going to get stronger with efforts like these.

Also, even if the stock runs the risk of getting delisted from the NYSE, investors will be given a chance to cash out, so that shouldn’t be a worry.

What is the Target Price for BABA Stock?

Wall Street analysts are bullish on BABA, with a Strong Buy consensus rating based on 17 Buys and one Sell. The average price target stands at $156.12 currently, which means it still has room for growth by about 99%.

Footnote: This Could Be a Great Time to Buy Alibaba

Various upsides can be seen which can drive Alibaba’s long-term trajectory, like market dominance and economic recovery in China.

Moreover, the company’s current valuation is around 44.5x trailing 12-month earnings, which is significantly below its 5-year high of 67.6x, which it achieved in July this year.

These call for some serious consideration from investors without any recent bias to accumulate shares of BABA.

Disclosure

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Chinese stocks have largely remained submerged in volatility over the last few years. Many notable names have not been spared. And investors will want to take note of any guidance Chinese companies offer on complying with the SEC’s Holding Foreign Companies Accountable Ac