The Company That Could Be Amazon's Biggest Threat

The Five On Friday is our weekly newsletter covering the investing world's top stories each week. If you want to subscribe for more great content, simply sign up here.

The rise

10 years ago, if you were to ask the average Westerner if they had ever heard of AliExpress - a subsidiary of Alibaba - they would probably have no idea what you're talking about. Fast forward to 2019 and Alibaba Group (NYSE: BABA) is on the rise, with a market cap of almost $500 billion. 

Born from the ashes of the dot-com crash in 1999 and led by founder (and recently ex-CEO) Jack Ma, the company quickly became an established e-commerce platform in its native China. From e-commerce and payments systems to cloud services and artificial intelligence, there are few sectors left in which Alibaba hasn't already established a strong presence. 

Alibaba is competing on a global scale against, and in several instances outperforming, its more ubiquitous American counterparts including Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), PayPal (NASDAQ: PYPL), and eBay (NASDAQ: EBAY). It is no surprise when looking at all of this, that Alibaba may be the one platform that could challenge Amazon's dominance.

Alibaba 2019

Alibaba has grown to almost half a trillion dollars, up 90% from its 2014 IPO, and through its subsidiary AliExpress, already sells goods from Chinese retailers to customers in over 150 countries. The company is also in the process of allowing foreign retailers to also sell their products, which could open up massive growth opportunities.

As with the other members of the hailed BAT (Baidu, Alibaba, Tencent) group of China, Alibaba benefited greatly from the strict internet-controlling policies of its home country. With the Chinese government essentially filtering out foreign competitors, Alibaba was able to gain almost complete control of its own market. 

Now the company is expanding globally, with equity stakes in other Asian markets such as in Indonesia's Tokopedia and India's Snapdeal, as well as its subsidiary Lazada -- Southeast Asia's largest e-commerce platform.

While Amazon has seen some growth in revenue, recently accelerated to 24% year-over-year from 20% in the second quarter, investors are currently wary. The U.S. - China trade war has cast some doubt over the stability of the market, which has led to ebbing and flowing in stock such as Alibaba and Amazon. 

Though Alibaba has remained relatively the same year-on-year, it also shows that the company is riding out this storm, while Amazon has disappointed investors with just under 7% improvement in its stock price year on year as of late October.

Where to next?

The overall outlook of Alibaba stock is good, as consumer spending and population in Asia grows. As well as this, China's consumer economy is on the rise, despite trade-war woes. Alibaba is also improving its profit margins as it slows down the rapid spending it has been doing in order to fuel growth in recent years. As of mid-2019, total revenue amounted to just over $60 billion, up from $45 billion the year before, with net income of $15 billion versus $9 billion the year previous. 

One of the main factors which will stand testament to Alibaba's power is the fact that they have a near-monopoly of the world's largest market in China, as well as good standing in India. The e-commerce giant also has the ability to move in on the more accepting and open European and U.S. markets, while the likes of Amazon struggle to gain any foothold in the other direction.

While Amazon is the current leader in the U.S. and abroad, Alibaba's expansion is a threat that will only continue to grow. Although Alibaba may not be a threat to Amazon's dominance right now, who is to say that it cannot win over the U.S. market eventually with its lower prices and increased foreign trade.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Alibaba Group and Amazon. Read our full disclosure policy here.