“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 è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.
Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.
Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.
Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.
Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.
È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.
Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.