Alibaba Stock Is Facing A Fresh Threat From Amazon.com Inc

Amazon.com Inc (AMZN) is making a play for this fast growing eCommerce market currently dominated by Alibaba (BABA).

Amazon.com Inc (NASDAQ:AMZN) and Alibaba Group Holding Ltd (NYSE:BABA) are two very fast growing companies on which market is generally bullish. Both the companies are present in a broadly similar business segments, eCommerce, cloud computing, digital payments and now smart speakers. But considering that Alibaba is mainly focused in the Chinese market and Amazon doesn’t have a presence in China, both the companies have seen relatively less of each other. However, this is about to change. The rivalry between the two eCommerce giants is all set to intensify as both the eCommerce giant’s look to expand to faster-growing markets. So far, both the companies have been excellent shareholder value creators. While Amazon stock has rallied by over 40% in the last one year, Alibaba stock has returned over 83% in the same period.

Both Alibaba and Amazon are gunning for South East Asian Market.

Amazon has been on a major expansion drive, both in geography segments as well as business segments. The Seattle based eCommerce giant recently finished the acquisition of Whole Foods Market (NASDAQ:WFM) for nearly $14 billion which will expand company’s presence in the grocery market. The company had also recently concluded the acquisition of Souq.com, which will give Amazon an access to fast growing eCommerce market in the middle east. And, now Amazon is making a play for South East Asia. Amazon has first announced its intention to enter the South East Asian market last November. But the company had not made any major moves till now. However, recent reports indicate that Amazon is all set to launch its services, Amazon Prime, Amazon Prime Now fast delivery and Amazon.com e-commerce portal in Singapore, as early as this week. The company has already started marketing its services.

However, Amazon is late to the South East Asia party. The region is dominated by the Chinese eCommerce giant Alibaba and Tencent. Last year, Alibaba had invested $1 billion in Lazda group, one of the largest eCommerce operator in the region, for a controlling stake. Alibaba recently topped its investment in the company by another $1 billion. Lazda deal gives the Chinese giant access to six markets. Also, Lazada’s payment platform HelloPay has been rebranded to Alipay across four Southeast Asian markets it operates in, including Singapore and Indonesia. Alibaba is also in talks to invest up to $500 million in Indonesia’s largest eCommerce platform, Tokopedia.

The Southeast Asian market is likely to be one of the fastest growing eCommerce markets. According to a Google Temasek report, eCommerce in the region is tipped to grow more than 15x, from $5.5 billion in 2015 to $87.8 billion by 2025. This strong rally will be driven by young population, the growing middle class, and rising internet penetration. The region is currently adding 3.8 million new internet users per month. The Indonesian eCommerce market alone is expected to grow from $8 billion currently to $65 billion by 2020. Given such high stakes, it is not surprising that Amazon is making a play for a region which is currently dominated by its Chinese rivals. The growth opportunities are large enough to accommodate both the giants.

India rivalry heats up.

Both Alibaba and Amazon are already engaged in a fierce competition to gain dominance in the Indian market. The India eCommerce, though still in a nascent stage, is one of the fastest growing major eCommerce market in the world. Indian eCommerce segment is expected to become a $60-$100 billion market by 2020 from $15 billion in 2016. This growth will be fueled by rising income levels, an aspiring middle class, and higher internet penetration. Amazon, which has entered the Indian market in 2013, is very bullish about its prospects in the South Asian nation. The company expects India to become its largest market outside the U.S and has already committed $5 billion to its business in this country. And the results so far have been good. Amazon recently announced that it is the most visited and the fastest growing marketplace in India according to data from comScore and SimilarWeb. Amazon India’s business doubled last year and the 2016 festive season produced “triple digit growth over” the year-ago period.

Alibaba is not far behind. Alibaba Group has a majority stake in Paytm Ecommerce Pvt Ltd and a small stake in third largest eCommerce portal Snapdeal. Alibaba and its affiliate Ant Financial also have 40% stake in Paytm digital wallet, India’s largest mobile payment wallet with more than 200 million users. And, according to a BloombergQuint report “Chinese e-commerce giant Alibaba Group Holding Ltd. and its Indian associate Paytm E-commerce Pvt are in talks to invest about $200 million for a stake of roughly 20 percent in India’s leading online grocer, Bigbasket”. Amazon also has big plans for Indian grocery market.

Analysts remain bullish on both the eCommerce giants.

Amazon and Alibaba are two excellent businesses with strong growth fundamentals and huge growth potential. Both the companies have delivered strong growth in the past and are likely to continue doing so in the future. Both companies are likely to burn billions of dollars in trying to gain dominance in South East Asia and India, however, both of them have deep pockets and access to huge resources. Analysts continue to remain bullish on both Alibaba stock as well as Amazon stock.

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