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It's been an exciting month for the future of online retail. Numerous leaders are making big announcements of future expansion plans. And with Alibaba Group Holding Ltd (NYSE: BABA ) as the world's number two e-tailer by market cap, its future will be greatly affected by how all this plays out. How should you think about BABA stock as the fight for the global marketplace heats up?
The internet's most feared retailer, Amazon.com, Inc. (NASDAQ: AMZN ), isn't sticking to just its core markets. Amazon was soundly crushed in China and is a non-presence there today. BABA stock wouldn't be where it is now otherwise. However, Alibaba's win in China hasn't stopped Amazon from moving into other new markets recently.
In Brazil, for example, the web retailer appears to be set to make more deliveries to its namesake region. In October, Bloomberg reported that Amazon is considering expanding its operations in Brazil to include lucrative categories including electronics. Current Brazilian market-share leader Mercadolibre Inc (NASDAQ: MELI ) tumbled 10% in a single day on the news.
Amazon also finally launched its own dedicated website and store within Australia this past week after years of speculation. Count Singapore among other markets where Amazon has also gone live in 2017. A large part of these moves, analysts speculate, is to lay claim to these territories before Alibaba grabs too much share in them itself.
BABA Stock's Big Battle
All of this is, arguably, a sideshow however for BABA stock. Alibaba and Amazon are set to fight their most important battle yet in India. Both companies have made aggressive investments in the country since 2014. They're fighting at a fever pitch to establish the superiority of their wallets and digital payment systems. This has taken on special importance over the past year as the Indian government cracked down on large denomination cash-based transactions. That move has created a massive opportunity for the country's digital retailers.
Amazon's strategy is true to its prior offerings. It is focusing its push on low-end items that consumers come back to again and again. That provides more lock-in, as it has in the United States. Alibaba's offering, by contrast, has focused on more expensive, presumably higher-margin items such as electronics, appliances, scooters, and bikes. Despite arriving at the market somewhat late and focusing on more one-time style purchases, however, Alibaba's Indian operation already claimed 20% market share in a recent holiday period.
Can BABA Stock Live Up to Global Ambitions?
A provocative Bloomberg Views article recently suggested that maybe China can't take over the world . The author noted that due to regulations that exist only in China, many companies with innovation solutions have sprung up locally. However, these companies have delivered fixes that apply mainly to specific China-related market needs. Thus, when Chinese companies go overseas, they're often addressing a problem that doesn't really bother consumers outside of the Chinese market.
This would explain why few Chinese brands have achieved international success, despite that economy's large size. And don't blame it just on distance or language. Japan has exported tons of iconic brands, including the likes of Nintendo and Toyota Motor Corp (ADR) (NYSE: TM ). However, perhaps China's unorthodox form of capitalism is confusing its companies when they try to compete in Western markets.
That brings us back to Alibaba, which at this point is the leading Chinese internet brand. Alibaba has done well in various Southeast Asian markets. However, it hasn't yet dominated another key market that shows it can be a global rival to the likes of Amazon. While Amazon hasn't succeeded in every market it has tried, its dominant positions in European Union markets, such as Germany, prove that its model can be exported. Alibaba is focused on winning in India to prove to it isn't merely a one-hit wonder.
The Race Is On
A Fortune article from earlier this year made it clear just how seriously Alibaba CEO Jack Ma is taking foreign expansion. The authors wrote : "Over the past year, Ma has spent more than 800 hours flying to dozens of countries, meeting business leaders and head of states to introduce his grand vision: small businesses from all corners of the world trading freely and securely on Alibaba's platform."
As we saw earlier, Amazon is scouting out many of these same countries for expansion. Brick and mortar retailers such as Wal-Mart Stores Inc (NYSE: WMT ) are finding increasing success online as well. Walmart, with its dominant operations in more than two dozen countries, is a particular threat, given its huge geographic reach and improving digital acumen.
And closer to home, Alibaba's most fierce rival is also going to war. At the World Internet Conference in China this week, JD.Com Inc(ADR) (NASDAQ: JD ) CEO Liu Qiangdong unveiled a grand vision. He said that JD will be launching operations in the U.S. and Europe as soon as 2018. And that within 10-20 years, JD.com will be a household name across the world. Given that JD is giving Alibaba a run for its money in China, and that powerful backer Walmart owns more than 10% of JD's stock, this is no idle threat.
Verdict on BABA Stock
I wouldn't buy into BABA stock here for other reasons, namely the lingering questions about the company's accounting that I recently discussed . Since that article, the bears have taken the upper hand. Sellers have driven down the price of BABA stock by almost 10% over the past week. Thanks to the decline, however, purely as a technical quick dip buy into the holidays, this may be a decent entry.
In the grander scheme of things though, Alibaba has a lot to prove. Its market cap is simply so huge. Alibaba currently has 50% greater market capitalization than Walmart and fully 8x more than JD.com. However, the competition between these firms, along with Amazon, is going global. Jack Ma's profitable Chinese recipe will be tested against stiff competition here shortly.
At the time of this writing, the author held JD stock and had no positions in any of the other aforementioned securities. You can reach him on Twitter at @irbezek.
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