Alibaba – Retail detail.

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Amazon: 480 – Alibaba 600,000+.

• Alibaba is already streets ahead of Amazon when it comes to total business transactions and its move into retail shows that it is China where all the new ideas are happening first.
• Amazon has a much higher market valuation than Alibaba but when looks at the fundamentals, it is clear that Alibaba is far more advanced in the core online and offline commerce market.
• For example, on November 12^th 2017, Alibaba transacted more business in one day ($25bn) than Amazon typically does in one quarter (Q4 2017 excepted).
• Furthermore, when one looks at retail Alibaba is also far more advanced with a series of investments in large retailers and at least 600,000 small retail outlets converted to its Tmall retail system (LST).
• Amazon has 1 store on its system and 479 Whole Foods stores which are gradually being converted.
• Alibaba LST (Ling Shou Tong) is a system by which an offline convenience store can be converted to being fully digital.
• This gives a small retailer and end to end system for stock management, transaction and payment such that users can browse and pay for goods with their mobile phones.
• The catch of course is that the merchants are completely wedded to Alibaba and need to order the vast majority of their stock using Alibaba and also share their transaction data.
• This represents an encroachment into Tencent’s territory as mobile phone payments in small retailers to date has been handled mostly using WeChat.
• I am pretty sure that the small retailers can still use WeChat Pay or cash to take payments but it will be outside of the end to end system they have installed and therefore not very convenient.
• Hence, I would expect them to encourage users to use Alipay where possible.
• Alibaba LST has been very successful with 600,000 stores converted by November 2017 where many have seen at least a 30% increase in turnover as a result.
• This may well have passed 1m by now.
• I think that key to this will be the data generated which could end up being extremely valuable.
• This is because Alibaba will be able to collate data from thousands of outlets and draw unique conclusions about how its users shop, what they buy and what they like.
• Furthermore, as the individual stores will only have their own data, this insight will be unique to Alibaba and therefore highly monetisable.
• In contrast, Amazon is miles behind in everything except in the cloud meaning that I think it will begin copying Alibaba’s innovations.
• Consequently, when thinking about global e-commerce, I see the case for investing in Alibaba as much stronger than it is for Amazon.
• It is both much larger in terms of turnover and much further ahead in terms of penetrating bricks and mortar retail.
• It is also far more profitable with a higher growth rate.
• However its market cap is still only 2/3rds of Amazon’s raising the possibility of a straight switch.
• I have never been able to get behind Amazon’s valuation but I can feel a lot more comfortable with Alibaba’s