- 24/01/2018
- Category: Commentaries
Introduction
Every year the largest e-commerce platforms, Alibaba and Amazon, becomes two of the most talked-about companies, especially with their record-breaking sales. The development of digital technologies and business strategies has created numerous opportunities for these companies to innovate in. These two e-commerce companies might be big, but just how big are they? To give you a picture, in this article we summarize how Alibaba and Amazon performed in 2017, specifically regarding its financial performance and what acquisitions it has made this year. Along the way, we also provide forecasts on what to expect of these two e-commerce powerhouses in 2018.
Alibaba Grows Most, but Amazon Still Holds the Top Spot
In 2017, the two e-commerce giants’ market value came exceptionally close to each other. Alibaba and Amazon started the year in January valued at US$ 221 billion[i] and US$ 359 billion respectively[ii], with Amazon holding its lead since July 2015. The competition heated up when Alibaba’s market value skyrocketed after its annual investor-day conference in June, and it finally overtook Amazon in September with a market value of US$ 472 billion, slightly higher than Amazon’s US$ 470 billion. In doing so, Alibaba became the first company in Asia to exceed the US$ 400 billion valuation mark. However, Amazon quickly reclaimed the top spot and ended the year in December with a US$ 570 billion market value and Alibaba with US$ 442 billion.
Market value of Alibaba and Amazon in 2017
| 2017 | Alibaba | Amazon |
| January | US$ 221 billion | US$ 359 billion |
| September | US$ 472 billion | US$ 470 billion |
| November | US$ 487 billion | US$ 556 billion |
| December | US$ 442 billion | US$ 570 billion |
Meanwhile, Amazon commanded a staggering lead in terms of revenue, even though Alibaba had the higher growth between the two. Amazon’s revenue until the third quarter of 2017 (Q1-Q3 2017) stood at US$ 117 billion, but have not yet matched its total revenue in the previous year of US$ 136 billion.[iii] At the same time, Alibaba’s revenue stood at $21 billion in Q1-Q3 2017 and is already much higher than its previous total annual revenue of US$ 15.4 billion.[iv]
Net revenue of Alibaba and Amazon in 2016 and Q1-Q3 2017
| Alibaba | Amazon | |
| Q1-Q4 2016 | US$ 15.4 billion | US$ 136 billion |
| Q1-Q3 2017 | US$ 21 billion | US$ 117.4 billion |
Even though Amazon still holds the lead in these aspects, in 2017 Alibaba seems like the more successful e-commerce company between the two. Its market value has doubled within a year, and it shows just how significant the Chinese powerhouse has grown compared to its American counterpart. It is no wonder that Alibaba was more profitable in terms of growth than Amazon because China is the largest Internet market in the world.[v] The country has 560 million internet users – twice the size of the US market – and they spend on average 20 hours online per week. Experts have also pointed out that Alibaba’s sales and earnings growth that year was due to the massive influx of new customers, e-commerce platform traffic, and the effects of personalization technologies that improved customer experience on Alibaba’s web portals and devices.[vi]
This year, we can expect a constant increase in Alibaba and Amazon’s market value. Considering the strong rate of each companies’ growth in 2017, either one or both companies will hit the US$ 1 trillion market value mark in 2018. This will be a massive achievement for the company and a significant milestone for the e-commerce sector in general. Since profitable innovations will continue to emerge in the e-commerce sector, investors’ confidence will grow and investments will rise—thus increasing the market value of not only Alibaba and Amazon but also other online retail companies such as Walmart and JD.com. Both Alibaba and Amazon will continue to benefit from today’s digital revolution and the increasing number of people going online.
For Alibaba, the race to US$ 1 trillion could be sped up by the predicted initial public offering (IPO) of Ant Financial—an affiliate company of the Alibaba Group which operates the popular online payment platform in China named Alipay.[vii] Alipay itself is positioning to further dominate the financial services market in the near future, capitalizing on the constantly increasing number of internet users and online customers. Even though Amazon has always been the bigger company over the years, Alibaba will pose an even greater threat to them in 2018 than it previously did.
Integrating Online and Offline Shopping through Company Acquisitions
Another aspect that could give a glimpse of Alibaba and Amazon’s success in 2017 is what has been done to expand its markets domestically. Last year, both Alibaba and Amazon were busy investing in and acquiring other businesses. Through acquisitions, a company can expand its sectors of business and improve its products and services strategically to create better value. In the domestic level, the two companies’ acquisitions that stood out last year were surprisingly those of physical retail stores, rather than companies that provide digital services. This was evidently a strategy to integrate elements of online and offline retail and increase customers on both ends.
In 2017, Alibaba acquired several companies under the concept of ‘New Retail’ as it seeks to expand into offline shopping. At the start of the year, the Chinese powerhouse bought the department store chain Intime Retail for US$ 2.6 billion and opened its physical store soon after.[viii] As part of its wider push into offline retail, Jack Ma’s company then invested US$ 2.87 billion on Sun Art Retail Group Ltd, the top hypermarket operator in China, turning Alibaba into a major stakeholder in the company.[ix] This partnership provided Alibaba with a strategic foothold in China’s US$ 500 billion food retail sector. Regarding product delivery, Alibaba also invested US$ 807 million for majority ownership in Cainiao Smart Logistics Network Ltd.[x] From this ownership, Alibaba is now able to provide faster delivery of products to its customers. The integration of its e-commerce platform and delivery system will further support Alibaba’s ‘New Retail’ strategy. To top these two acquisitions off, Alibaba launched its very own cashless store named Herma in mid-2017, following the footsteps of Amazon’s cashless, self-service store named Amazon-Go.
On the other side of the globe, Amazon caught headlines when it acquired the supermarket grocery chain Whole Foods Market Inc in August 2017 for US$ 13.7 billion.[xi] With the hundreds of physical stores that Whole Foods already has across the United States, Amazon’s presence in the grocery and brick-and-mortar space will increase – a huge advantage since Amazon can’t build its own physical presence quickly enough alone. The acquisition will also strengthen Amazon’s logistics and distribution chain in the country. We can expect Amazon to incorporate its latest technologies into the Whole Foods’ business model, similar to how it has done for the book, retail and newspaper industries, to name a few. Since Amazon Go has not yet officially opened due to technical issues, the Whole Foods’ acquisition could give Amazon the much-needed opportunity to experiment with physical grocery shopping and stabilize Amazon Go’s groundbreaking technology.
From these expansions into offline shopping, Alibaba and Amazon have driven digital disruption in the retail and grocery industries. In China, although digital companies have leapfrogged physical retail stores’ market share, online sales still account for just 15% of all retail.[xii] Therefore, Alibaba took to revolutionize offline shopping in its ‘New Retail’ strategy through the use of big data and artificial intelligence. In the US, Amazon’s latest acquisitions have also fundamentally changed the grocery industry, with the market value of several of its competitive grocery retailers dropping between 4% and 12%.[xiii] The combination of Whole Foods’ physical store network and Amazon’s expertise in utilizing technology for customer service and efficiency has created a magnitude of digital disruption in the grocery industry. The disruption of these industries places enormous pressure on players in their respective industries that have not yet gone digital to survive in the competition.
For these two e-commerce giants, the acquisitions won’t stop there. In 2018, Amazon will aim to pick up in other industries where it doesn’t have an online presence yet. Since Amazon isn’t particularly well-known for its apparel business, we might see Amazon purchase more apparel and lifestyle retail stores such as Everlane and Warby Parker to gain that necessary advantage.[xiv] It is also lining up to enter the pharmacy market, as industry experts mention this could be a multi-billion market opportunity for Jeff Bezos’ company.[xv] As for Alibaba, it will continue to build a strong physical presence through malls, supermarkets and convenience stores as part of its ‘New Retail’ strategy. A particular event to look out for in 2018 is the opening of Alibaba’s ‘More Mall’ which is set to open in April, giving the company the chance to develop a sophisticated, high-end physical retail store right from the beginning.[xvi]
Conclusion
From the two companies’ market value and acquisitions this year, we could see just how dominant Alibaba and Amazon are; not just in the e-commerce sector but also in physical retail lately. By harnessing and developing innovative technologies, they can disrupt more and more industries, further digitalizing the way customers shop. It is unknown whether other players in the future will rise and take up their spots, but one thing for certain is that these two e-commerce giants will continue to disrupt more industries. Players in the industry that are negatively affected will have to come up with strategic responses so that the digital revolution doesn’t remove them from the competition.
Editors: Atin Prabandari, MA(IR)., Viyasa Rahyaputra, SIP
References
[i] YCharts, (2017). Alibaba Group Holding Market Cap. [online] Available at:https://ycharts.com/companies/BABA/market_cap [Accessed 28 Dec 2017].
[ii] YCharts, (2017). Amazon.com Market Cap. [online] Available at:https://ycharts.com/companies/AMZN/market_cap [Accessed 28 Dec 2017].
[iii] Statista, (2017). Net revenue of Amazon from 1st quarter 2007 to 3rd quarter 2017 (in billion U.S. dollars). [online] Available at: https://www.statista.com/statistics/273963/quarterly-revenue-of-amazoncom/ [Accessed 28 Dec 2017].
[iv] Statista, (2017). Consolidated revenue of the Alibaba Group from 2nd quarter of 2011 to 3rd quarter 2017 (in million yuan). [online] Available at: https://www.statista.com/statistics/323046/alibaba-quarterly-group-revenue/ [Accessed 28 Dec 2017].
[v] Mourdoukoutas, P. (2017). Alibaba Beats Amazon. [online] Forbes. Available at: https://www.forbes.com/sites/panosmourdoukoutas/2017/08/22/alibaba-beats-amazon/#1aff9f313f97 [Accessed 28 Dec 2017].
[vi] Cherney, M. A. (2017). Alibaba is growing even faster and totally unlike Amazon. [online] Market Watch. Available at: https://www.marketwatch.com/story/alibaba-is-growing-even-faster-and-totally-unlike-amazon-2017-11-02 [Accessed 28 Dec 2017].
[vii] Russel, J. (2017). Alibaba’s Ant Financial is raising $3B in debt to finance a global M&A spree. [online] Tech Crunch. Available at: https://techcrunch.com/2017/02/08/alibabas-ant-financial-is-raising-3b-in-debt-to-finance-a-global-ma-spree/ [Accessed 28 Dec 2017].
[viii] Pramisti, N. Q. (2017). Pertarungan Sengit Alibaba Lawan Amazon. [online] Tirto.id. Available at: https://tirto.id/pertarungan-sengit-alibaba-lawan-amazon-csTh [Accessed 28 Dec 2017].
[ix] Reuter, (2017). Alibaba goes offline with $2.9 billion stake in China’s top grocer. [online] Available at: https://www.reuters.com/article/us-alibaba-sun-art-retail/alibaba-goes-offline-with-2-9-billion-stake-in-chinas-top-grocer-idUSKBN1DK057 [Accessed 28 Dec 2017].
[x] Russel, J. (2017). Alibaba pays $807M to take majority ownership in logistics affiliate Cainiao. [online] Tech Crunch. Available at: https://techcrunch.com/2017/09/26/alibaba-majority-ownership-cainiao/ [Accessed 28 Dec 2017].
[xi] Turner, N., Wang, S. & Soper, S. (2017). Amazon to Acquire Whole Foods for $13.7 Billion. [online] Bloomberg. Available at: https://www.bloomberg.com/news/articles/2017-06-16/amazon-to-acquire-whole-foods-in-13-7-billion-bet-on-groceries [Accessed 28 Dec 2017].
[xii] Liu, P. et.al. (2017). The Accelerating Disruption of China’s Economy. [online] Fortune. Available at: http://fortune.com/2017/06/26/china-alibaba-jack-ma-retail-ecommerce-e-commerce-new/ [Accessed 28 Dec 2017].
[xiii] Durden, T. (2017). Grocery Stocks Crash After Amazon Buys Whole Foods. [online] Zero Hedge. Available at: https://www.zerohedge.com/news/2017-06-16/amazon-buy-whole-foods [Accessed 28 Dec 2017].
[xiv] Thomas, L. (2017). Amazon might go after Lululemon or Warby Parker next, analyst says. [online] CNBC. Available at: https://www.cnbc.com/2017/06/16/here-are-the-companies-amazon-might-go-after-next-analyst-says.html [Accessed 28 Dec 2017].
[xv] Farr, C. (2017). Amazon is hiring people to break into the multibillion-dollar pharmacy market. [online] CNBC. Available at: https://www.cnbc.com/2017/05/16/amazon-selling-drugs-pharamaceuticals.html [Accessed 28 Dec 2017].
[xvi] Chhatwal, R. (2017). Alibaba: Investing For Future Growth?. [online] Seeking Alpha. Available at: https://seekingalpha.com/article/4110455-alibaba-investing-future-growth [Accessed 28 Dec 2017].
