“E-Commerce companies” – once restricted to the likes of Amazon and eBay – are now legion. As we mentioned in our article in December, there are now over 24 million stores selling online using a variety of means – a far cry from simply books and used items.
Top e-commerce companies have been evolving and adapting to the new norms in many different ways. We start Part 1 of this two-part series by digging deep to identify the new edges being defined by two “old school” e-commerce giants – Amazon (ticker: AMZN) from the U.S. and Alibaba (ticker: BABA) from China.
E-Commerce: Landscape and Leaders
Over the past few years, the online retail landscape has been growing by leaps and bounds. According to the U.N. Conference on Trade and Development (UNCTAD), just seven countries accounted for 65% of global online retail (or “B2C”) sales in 2019. In 2020 these seven countries saw 19% of their retail sales completed online.
However, it bears noting that in terms of percentages, B2B e-commerce, represented 82% of all e-commerce in 2019 with a total value of $21.8 trillion over online market platforms and electronic data interchange (EDI) transactions. B2B revenues, while impacted by the pandemic in 2020, are expected to swing back as the global economy regains its footing.
Nonetheless, after registering sales estimated at $4.28 trillion in 2020, B2C sales is projected grow further upwards over the next few years.
By the end of 2021, it is estimated there will be more than 2 billion people buying goods and services through e-commerce portals, with India ranking first in retail e-commerce growth by 2023. Globally, e-commerce companies’ revenue is predicted to reach more than $6 trillion by 2022.
As seen above, Amazon is a monster in the online retail space. As per data for 2019-2020, online retail accounts for over 70% of its revenue.
However, as we had seen with Uber, revenue doesn’t always correlate with profits. A company’s operating income would be a more revelatory indicator of profitability since it reports the amount of profit realized from the company’s ongoing operations.
Amazon’s earnings reports reveal that Amazon Web Services (AWS), which accounted for a modest 12.4% of the company’s revenues, was responsible for more than 63% of the entire company’s operating profit – a sum of $13.5 billion – for 2020. Going from strength to strength since 2014, AWS is now the dominant profit driver for the company.
Cloud Market: Hidden Minutiae
The growth in cloud-based services is the driver for Amazon’s investment in and deployment of AWS. Trends and studies indicate that businesses typically find that costs of computing are lower with the “cloud” than with dedicated computing infrastructure. This is also robust growth forecasted in cloud computing over the next several years.
Since the launch of AWS on March 14, 2006, it is estimated that this division alone accounts for over 30% of total global revenue from cloud computing in recent years.
While the battle for “cloud” market share puts Amazon squarely in competition with Microsoft, Google and IBM, its China-born rival Alibaba also appears to be a serious contender that seems to be inching up to tech giant Google. In 2020, Alibaba Cloud showed growth rates comparable to Microsoft and Google with AWS being nearly half of that.
In terms of stock performance, Alibaba had a spectacular start to 2021 with Amazon being more muted in comparison to the benchmark S&P 500 (SPX) with very interesting results since.
Reports surfaced in March that, Alibaba – along with many other Chinese tech companies – was being targeted by the Chinese government as part of its ongoing anti-monopoly crackdown. However, reports also indicated that Alibaba would likely face no more than a hefty fine. In April, the company was ordered to pay $2.8 billion in fines as well as carry out a comprehensive revamp of operations and submit a “self-examination compliance report” within three years. Following the decision, the company’s stock has gradually been regaining its momentum and aligning with Amazon’s performance.
Given the company’s fiscals, it should come as no surprise that long-time AWS chief Andy Jassy is now at the helm of Amazon after Jeff Bezos stepped down. In fact, shortly after Jassy officially took over in July, the U.S. military’s $10 billion JEDI Cloud contract – allegedly awarded unfairly by former President Trump to Microsoft over Amazon – was cancelled and a new contract being solicited with both Amazon and Microsoft competing for it, leading to Amazon stock price surging upwards.
This story also signifies that e-commerce would likely no longer be the mainstay of Amazon’s growth story. Given the level of competition in the China, Alibaba is going down the same road and will likely continue to burn cash to establish dominance in the “cloud” market. However, given data security concerns on account of it being a Chinese company, it is unlikely that it would find significant footing outside of China.
Within their home markets, however, both companies face stiff competition in their core business – online retail. Stay tuned for Part 2 coming out this Thursday for an overview of key competitors rising against Amazon and Alibaba.
Violeta a rejoint Leverage Shares en septembre 2022. Elle est chargée de mener des analyses techniques et des recherches sur les actions et macroéconomiques, fournissant des informations importantes pour aider à façonner les stratégies d’investissement des clients.
Avant de rejoindre LS, Violeta a travaillé dans plusieurs sociétés d’investissement de premier plan en Australie, telles que Tollhurst et Morgans Financial, où elle a passé les 12 dernières années de sa carrière.
Violeta est une technicienne de marché certifiée de l’Australian Technical Analysts Association et est titulaire d’un diplôme d’études supérieures en finance appliquée et investissement de Kaplan Professional (FINSIA), Australie, où elle a été conférencière pendant plusieurs années.
Julian a étudié l’économie, la psychologie, la sociologie, la politique européenne et la linguistique. Il possède de l’expérience en matière de développement commercial et de marketing grâce à des entreprises qu’il a lui-même créées.
Pour Julian, Leverage Shares est une entreprise innovante dans le domaine de la finance et de la fintech, et il se réjouit toujours de partager les prochaines grandes avancées avec les investisseurs du Royaume-Uni et d’Europe.
Oktay a rejoint Leverage Shares fin 2019. Il est responsable de la croissance de l’activité à travers des relations clés et le développement de l’activité commerciale sur les marchés anglophones.
Il a rejoint LS après UniCredit, où il était responsable des relations avec les entreprises pour les multinationales. Il a également travaillé au sein de sociétés telles qu’IBM Bulgarie et DeGiro / FundShare dans le domaine de la finance d’entreprise et de l’administration de fonds.
Oktay est titulaire d’une licence en finance et comptabilité et d’un certificat d’études supérieures en entrepreneuriat du Babson College. Il est également détenteur de la certification CFA.
Sandeep a une longue expérience des marchés financiers. Il a débuté sa carrière en tant qu’ingénieur financier au sein d’un hedge fund basé à Chicago. Pendant huit ans, il a travaillé dans différents domaines et organisations, de la division Prime Services de Barclays Capital à l’équipe de recherche sur les indices du Nasdaq (plus récemment).
Sandeep est titulaire d’un master spécialisé en finance et d’un master en administration des affaires de I’Institut de technologie de Chicago.