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Is Alibaba The Better Buy Over Amazon
Is Alibaba The Better Buy Over Amazon
Is Alibaba The Better Buy Over Amazon
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6/25/2021 Is Alibaba The Better Buy Over Amazon?
Alibaba founder Jack Ma. Photo by Chen Zhongqiu/VCG via Getty Images. VCG VIA GETTY IMAGES
even Exxon Mobil XOM +0.4% , a polite disaster facing a dividend schmeiss
next year.
I can look at a corporate balance sheet for 60 seconds and tell you
whether it’s undercapitalized, overcapitalized or even precariously
perched for a bankruptcy filing within 12 months if numbers don’t wax
better.
One of the great circle jerks on the Street is the quarterly management-
guidance séance for analysts. Managements today are smart enough only
to hand hold their constituency up to the point of projecting next
quarter’s numbers within a narrow range.
Jeff Bezos at Amazon does this with gusto. Bezos never projects Amazon
earning more money in the coming quarter than in the past quarter or
that revenues grow much at all. Such nonsense ensures analyst
projections for revenues and earnings never match reality. The company
then attains an upside numbers surprise, worth its weight in gold.
Nobody ever gets his numbers right on near trillion to $2 trillion market
capitalizations. Start with Apple and work down to Microsoft MSFT -0.4% ,
Amazon, Alphabet, even Facebook and then Alibaba. The great irony in
the bull market for technology paper is that nobody can sharp-pencil
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earnings numbers or even build a credible income model that goes out
three to five years.
Peter Thiel Has Accumulated $5 Billion In A Tax Free Roth IRA Designed
To Help The Middle Class Save For Retirement, According To New Report
As such stocks levitate, say 300% over five years, everyone gradually
discards his earnings per share model and deals rather with multiples of
revenues, multipliers of Ebitda or in my case operating cash flow. My
focus on operating cash flow is that at least this is the wherewithal
available to management for building out their core competences.
I use the multiple of free cash flow yield too, for the same reason. Free
cash flow yields ranging from 5% to 10% comfort me in my picks. In
Facebook’s case, I’m amazed by their research spend which approximates
20% of revenues. But, they tell you nothing about research priorities so
it’s a raw stat.
Balance sheets are useless except for projecting how much stock the
company in question could buy back. This was an important
consideration in analyzing Apple, with its colossal-redundant capital, but
not so usable for Amazon, Facebook and Alibaba. In Alibaba’s case, they
are losing, perennially, billions covering initiatives in cloud computing
and the entertainment sector with no hint on future profitability.
They tell us nothing about their 33% holding in Ant Group which is a Far-
Eastern octopus in the making - covering money management, credit
cards and automated payments by consumers. Next five years, I see Ant
built out and capitalized by the market at over $500 billion, maybe
equivalent to the present market cap of Alibaba’s $600 billion.
I’m OK with such valuation metrics but I own more Alibaba than Amazon.
Net, net, it’s a cheaper piece of paper. So far, easier to follow, quarter over
quarter. Amazon carries a $1.5 trillion market capitalization, equivalent to
Microsoft, but still a guessing game, analytically speaking.
Maybe, I should move to Hong Kong, buy a bunch of Ant Group, then
watch them build out their franchise next five years.
There’s one last way of comparing Alibaba to Amazon. Forget about per-
share numbers, but look at the sheer magnitude of their business
footprints in e-commerce and cloud computing.
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Down the road, Alibaba’s Ant Group investment could become the tail
wagging the dog on asset-enhancement valuation. Alibaba is easier to
model and probably a better investment but not by a wide margin. Own
‘em both in a two-for-one ratio favoring Alibaba unless you think the
Chinese economy turns into a burned-out case.
Actually, as a stock past five years, Amazon left Alibaba in the dust.
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msosnoff@gmail.com
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Martin Sosnoff
I’ve been running a bunch of money almost as long as Warren Buffett, but Warren’s
made a bigger pile. I founded and was formerly CEO, CIO of Atalanta Sosnoff
Capital,… Read More
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