Text / Futuo Research Author / Tiancheng Henry In the mature and efficient market, the release of financial reports has always been a touchstone to test the stock price. If the financial report is amazing and surpasses expectations, there will often be a wave of gains afterwards. If the financial report is less than expected, the stock price will welcome a waveDown.On January 31, 2020, Amazon released the fourth quarter of 2019 financial report. Revenue increased 21% year-on-year and net profit increased 8% year-on-year. Both surpassed market expectations. The stock price rose 7.38% on the day.You know, Amazon’s earnings fell 26% in the last quarter.At the same time, Amazon raised its revenue guidance for the first quarter of 2020.From the date of the announcement of the fourth quarter earnings so far, its stock price has risen by 15%.What about Alibaba?It also lived up to expectations, and the Q4 financial report fully exceeded market expectations.38% revenue growth, 56% Non-GAAP net profit growth, exceeding expectations, and it is particularly noteworthy that Taobao Live is driving new users and GMV growth as a new shopping scene. As of December 2019, watch Taobao LiveGMV driven by Taobao’s monthly active users and Taobao Live Broadcasting have both more than doubled year-on-year.In addition, cloud computing revenue exceeded 10 billion yuan for the first time, with a growth rate of more than 60%.From the perspective of the stock price trend, Ali’s stock price has not risen sharply two days after the financial report. So, is there any chance to rise further after that?Alibaba VS Amazon, who has a greater chance?I. Amazon’s share price is behind us. We all know that Alibaba and Amazon, as leaders in the e-commerce industry, have always stood out as a “stable” character. Although the two are already large, they are still dancing..It is precisely because the fundamentals of both are stable. If you look at the rise and fall of the stock price alone, Alibaba will increase 55% in 2019, and Amazon will increase 23% in 2019. Amazon’s increase is not only far behind Alibaba, but also the same.Behind several other technology giants-Apple 2019 stock price rose 90%, Microsoft 2019 stock price rose 58%, Facebook 2019 stock price rose 57%, Google 2019 stock price rose 28%.Internet technology giant’s stock price trend in 2019 Amazon’s stock price lags behind, of course, for a reason.What did the market worry about before?After Amazon’s last quarter earnings report, the stock price plummeted 7%. The market has been worried that Amazon’s “one-day delivery” will increase costs and further reduce profit margins. In addition, Amazon’s cloud computing business faces fierce competition from Microsoft and Google.The growth rate has declined. Two factors have suppressed the performance of Amazon’s stock price.However, after the fourth quarter financial report was announced, Amazon used actual actions to dispel investor concerns. Although “one-day delivery” increased costs, it was not as serious as expected. On the other hand, “one-day delivery” contributed to the company.More revenue.In the fourth quarter, operating income was US $ 87.437 billion, a year-on-year increase of 21%, and the market expected it to be US $ 86.02 billion.The increase in revenue was mainly driven by the “one-day delivery”.Amazon claims that consumer spending on Amazon during the Christmas and other holidays reached record levels, and said that during this period, one-day and same-day deliveries were three times the same period.In addition, the growing revenue of cloud computing services, which has received much attention, has remained above 30%, eliminating investors’ concerns about fierce competition in the field of cloud computing.Cloud computing AWS single quarter revenue is close to $ 10 billion.So, we saw a sudden explosion in Amazon’s stock price after a year of silence.The comparison of the increase in the stock prices of Amazon and Alibaba since the beginning of this year shows that due to strong fundamentals and concerns over Amazon, Amazon’s stock price is chasing behind. This trend is likely to continue this year.Second, how to look at the valuation of Alibaba and Amazon?As of the close of the U.S. stock market overnight on February 15, Amazon (AMZN) had a market value of $ 1062.8 billion and Alibaba had a market value of $ 589.2 billion. Amazon’s market value was about twice that of Alibaba; but in fact, Alibaba’s profitability was stronger.Alibaba achieved net profit of 25.9 billion yuan, 21.4 billion yuan, 72.6 billion yuan, and 52.2 billion yuan in the last four quarters, and accumulated net profit of 172.1 billion yuan.Alibaba’s net profit is more than twice that of Amazon, but its market value is about half that of Amazon.At the same time, in terms of revenue growth, Alibaba also has the upper hand for a long time.From the valuation point of view, Alibaba’s price-earnings ratio is 24 times, about 1/4 of Amazon, and Amazon Dynamic PE is 92 times.Does this mean that Alibaba has greater investment opportunities?Simply looking at Alibaba’s PE, the current 24x valuation is indeed a long-term low.It is not meaningful to measure PE’s investment value with PE. For Amazon, it is more about free cash flow.Over the past 10 years, Amazon’s stock price has basically followed free cash flow.As of December 30, 2019, Amazon’s official free cash flow (TTM) was 25.825 billion US dollars, an increase of 33% year-on-year.The current market value of Amazon is 106.2 billion U.S. dollars, and the market value / free cash flow is about 41.2 times, which is slightly more expensive than about 30 times in the past, but we consider that Amazon’s free cash flow growth in the past three years is relatively reasonable.Similarly, the above figure shows that it is also unreasonable to estimate Alibaba’s market value based on free cash flow. Essentially, this is determined by the two companies’ different operating methods.In summary, from the perspective of valuation, Ali’s valuation is more attractive, but Amazon’s valuation is relatively reasonable, its free cash flow is growing rapidly, and its long-term value is also obvious.Third, the future growth trend of both is very certain that AWS has become Amazon’s “cash cow.”Amazon’s latest financial report shows that despite AWS’s increasing competition for products, especially threats from Microsoft Azure and Google Cloud.But due to years of technology investment and iteration, AWS has a huge lead in terms of capacity, services, and capabilities.In 2019, AWS successively launched about 77 new products, functions and services, involving general-purpose computing chips and AI inference chips, computing infrastructure, data warehouses, databases and PaaS services, AI and edge computing, etc., which supported AWS30% revenue growth.AWS’s quarterly sales increased by $ 2.5 billion, exceeding the overall annual total revenue of most cloud computing companies.At the same time in the digital advertising market, Google and Facebook accounted for 60% of advertising revenue, but Amazon is impacting the monopoly of the two.Advertising was one of Amazon’s fastest-growing areas during the quarter and showed no signs of slowing.And this time it lived up to expectations, leaving other companies behind with a growth rate of 41%.Cowen predicts that Amazon’s advertising revenue will reach $ 17.6 billion this year, a 36% increase from 2019, and will reach $ 46.6 billion by 2025.Similarly, this quarter, Ali’s earnings report blossomed a lot, and its future growth attitude was prominent.Cloud computing exceeded 10 billion for the first time, and the losses further narrowed.As the second largest revenue business of Alibaba, cloud computing revenue increased 62% year-on-year to RMB 10.721 billion in the fiscal quarter, and its single-quarter revenue exceeded 10 billion for the first time.Realize growth.Adjusted EBITA’s loss was RMB 356 million, which further narrowed the loss.Under the epidemic, Ali continued to sink, and Taobao Live and New Retail seized the high points.Taobao Live has become one of the fastest growing and effective marketing models. As of December 2019, the GMV generated by Taobao Live and the number of monthly active users watching Taobao Live have both doubled year-on-year.In addition, 54% of the total GMV for Double 11 came from consumers in less developed regions.The quarterly revenue of local living services increased by 47% year-on-year to 7.548 billion yuan, and GMV from less-developed regions increased by approximately 40% year-on-year.According to QuestMobile data, the average daily DAU of Hema App during the Spring Festival was 2.95 million, a year-on-year increase of 127.5%.The daily average DAU ranks first among many fresh food e-commerce apps, and the growth rate screen is second.Looking ahead, the epidemic will affect Ali’s revenue and profit in the first quarter of 2020, but in the long run, it will not affect Ali’s long-term growth logic, but will accelerate Ali’s new growth points.In summary: the non-stop flywheel effect What is the flywheel effect?Flywheel effect means that in order to turn a stationary flywheel, you must start by exerting a lot of effort, pushing it repeatedly in a circle, each circle is very laborious, but the effort of each circle will not be wasted.Turning faster and faster.After reaching a certain critical point, the gravity and impulse of the flywheel will become part of the driving force.At this time, you don’t need to exert more effort, the flywheel will still rotate quickly and keep rotating.This is the “flywheel effect”.The flywheel effect is becoming a strong driving force for Ali and Amazon to continue driving growth.Ali and Amazon, as the largest digital business empires in China and the United States, have strong similarities from the lowest level “mission, vision and values” to the flywheel model that drives the company’s long-term growth.Source: Southwest Securities Source: Southwest Securities Both focus on customers, choose e-commerce business as the underlying flywheel and derive similar growth flywheels outward, based on the bilateral network of e-commerce services serving both C-end customers and B-end merchantsThe effect directly shaped the bottom-level character of the “Empowerer” of the two, and eventually created the king of the B side of China and the United States.The scary thing is that the flywheels of Ali and Amazon are still accelerating, and they are becoming the most important operating system and infrastructure for business in the future.Editor / Sylvie Risk Tip: The opinions of the authors or guests shown above all have their specific positions, and investment decisions need to be based on independent thinking.Futu will endeavor but cannot guarantee the accuracy and reliability of the above content, and will not assume any loss or damage caused by any inaccuracies or omissions..
E-commerce giants, Alibaba and Amazon, who have greater opportunities to invest?
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