Alibaba Overtakes Amazon as Most Highly Valued Online Retailer

Alibaba Group Holding Ltd.
People walk through Alibaba.com Ltd.'s headquarters in Hangzhou, Zhejiang Province, China. Alibaba is projected to increase revenue faster than Amazon. Photographer: Nelson Ching/Bloomberg

Alibaba Group Holding Ltd. is knocking Amazon.com Inc. off its perch as the world’s largest online retailer by market capitalization, signaling the ascendance of a global rival for investor and consumer dollars.

Alibaba begins trading on the New York Stock Exchange today after pricing its initial public offering yesterday at $68 a share, putting the Hangzhou, China-based company’s valuation at $167.6 billion. That exceeds Amazon’s market capitalization of $150.2 billion, as of its closing price in New York yesterday of $325.

Alibaba’s pricing marks a milestone in the e-commerce market, where the center of gravity has long resided in the U.S. Amazon is the most prominent U.S.-based Web retailer, disrupting bricks-and-mortar rivals including Wal-Mart Stores Inc. and parlaying its success into cloud computing, smartphones and grocery delivery.

As a publicly traded company, Alibaba now presents an alternative for investors who want to benefit from growing global demand for online shopping. The IPO also gives Alibaba new cash that it can use to expand into areas -- including possibly the U.S. -- where it can vie with Amazon for customers.

“This means that there’s a new kid on the block that can give Amazon a run for its money,” said Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University.

Ty Rogers, a spokesman for Seattle-based Amazon, didn’t return a call for comment. Justin Dini, a spokesman for Alibaba, declined to comment, citing the quiet period ahead of the IPO.

By Revenue

Amazon remains the world’s biggest e-commerce company by revenue, with sales totaling $74.5 billion last year. Alibaba’s sales are a fraction of that, with 52.5 billion yuan ($8.6 billion) for the fiscal year ended March 31.

Alibaba is projected to increase revenue faster than Amazon. In 2015, Amazon sales are anticipated to rise 20 percent from a year earlier, according to data compiled by Bloomberg. By contrast, Alibaba revenue is estimated to increase 33 percent for its fiscal 2016.

Those growth rates will partly be driven by the different trajectories of Alibaba’s and Amazon’s respective home markets. China is set to overtake the U.S. in online spending by 2017, according to researcher EMarketer Inc. Web sales in the U.S. totaled $263.3 billion in 2013, compared to China’s $132.6 billion, EMarketer said. Developing countries such as China are seeing faster e-commerce growth as their populations go online to make purchases for the first time, the researcher said.

China Potential

“China is a bigger country and it also has better e-commerce penetration,” said Hany Nada, managing partner with GGV Capital, a venture capital firm in Menlo Park, California, which invested in Alibaba.

Alibaba and Amazon also have vastly different profit trajectories. Alibaba’s profit last year totaled 23.1 billion yuan, which was helped by its relatively low cost structure. The company doesn’t buy the products it sells, nor does it pay for the warehouses where goods are stored, or the delivery and logistics infrastructure to get a package to a person’s doorstep.

Instead, Alibaba’s main websites -- Taobao Marketplace, Tmall and Juhuasuan -- serve as an intermediary to connect buyers and sellers. Alibaba collects fees on some sales or sells advertising for merchants who want to get featured higher when a customer searches for products.

Amazon Spending

Amazon, by contrast, produced just $274 million in profit last year. The company has a vast network of fulfillment centers where it keeps inventory of products that it ships. Chief Executive Officer Jeff Bezos is also spending on new initiatives, including tablet computers.

“Alibaba has positioned itself to hold onto the Chinese market and grow,” said Michael Tudor, president of Ripen eCommerce, an online retail consulting firm in Princeton, New Jersey. “It has also shown an ability to turn a profit, which is something Amazon has had a difficult time doing.”

Investors have criticized Amazon for the lack of profit, pushing the company’s stock down more than 18 percent this year through yesterday -- another reason that Alibaba now holds the crown as the world’s most highly valued e-commerce company.

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