Last Month Alibaba (BABA, Financial) created a maverick on Wall Street with its blockbuster IPO launch. It swept the market from its feet and created a new history in the world of share trading. Records were broken, and others were created setting new benchmarks. The media was full of news from Alibaba, its IPO and the father of Alibaba's Jack Ma.
The streets were abuzz with analysis and speculations on the Chinese ecommerce giant and it has earned its place beside the retail big wigs like Amazon (AMZN, Financial) and Walmart (WMT, Financial). But true business would mean alluring consumers and not just a blockbuster IPO. Now let us track the race for market cap between the new hero of retail sector Alibaba and the retail giants like Walmart and Amazon.
The retail race track
Before targeting Walmart it would be wise for Alibaba to beat its closest American competitor â Amazon. One step at a time. To do so, it must raise its revenues tenfold to surpass Amazonâs $81.76 billion revenues.
Thatâs a much easier task to start with than targeting revenue levels of 50 times to surpass Walmartâs revenues. Let us take a look at its current number stand:
| Company | Alibaba | Amazon.com | Wal-Mart |
| Revenue (ttm) ($) | 9.36 | 81.76 | 480.48 |
| Qtrly Revenue Growth (yoy) | 46.30% | 23.20% | 2.80% |
| Qtrly Earnings Growth (yoy) | 179.10% | â | 0.60% |
| Operating Margins | 48.10% | 0.22% | 5.53% |
| Return on Assets (ttm) | â | 1.14 | 8.21 |
Though judging from the way Alibaba caught our eyes with the IPO and took the market in one pitch and toss, it is not a mission impossible for Alibaba to capture height, given the companyâs phenomenal revenue growth in recent years; beating Amazon would take more than signing up new vendors and new consumers for its sites. It needs building of "âmoats," the warehouses and distribution networks that would keep the competition off Alibabaâs home turf, preserving its hefty operating margins.
China and internet business
Chinaâs ecommerce zone is a highly competitive arena, with new competitors entering every day and eroding operation margins.
Baiduâs (BIDU, Financial) operating margin, dropped from 39.30% to 30.10% between 2011 and 2014 and Sohu.comâs (SOHU, Financial) from 19.59% to 13.10%. Youku (YOKU, Financial) and Renrenâs (RENN, Financial) operating margins have remained negative over the same period.
Global retail front
The retail store giant Walmart has not yet been silenced totally with the advent of ecommerce. Though online retail giants like Amazon and Alibaba did manage to dent its customer base, Walmart with its legacy in the retail sector and enormity of business is gearing up to respond back to the ecommerce peers and win back its customers. Walmart is now focusing its guns into the online shopping segment.
âUnlike some of his predecessors, Mr. McMillon embraced ecommerce early on,â wrote Wall Streetâs Shelly Banjo. âAs such, some of the more sweeping changes are evident on line, where Walmart has been particularly stung by Amazonâs product breadth and pricing models.â
In a bid to strengthen its online foothold, Walmart has acquired online search technologies and has been building warehouses dotting across its business map in order to facilitate impeccable delivery network. In 2013, Walmart acquired @WalmartLabs, an ecommerce technology arm, and acquired a number of start-ups like Torbit, a cloud-based website accelerator service; Inkiru, a predictive intelligence platform; OneOps, a cloud based automation technology; Tasty Labs; and recently Adchemy, a search engine marketer.
Walmartâs online strategy has already served its first jab on the face of Amazon.com and it has been working well. Walmartâs online sales growth outpaced that of Amazon.com for the quarter ending December 2013. However Walmart has to still work a lot before it could level with Amazon.com as an ecommerce player. Amazon still holds the top spot in online retailing beating Wal-Mart by 7-1. Though Jack Ma of Alibaba had mentioned that it is open to enter into strategic location based partnership with the ecommerce top shot Amazon however the top shot does not seem interested to take Alibaba onboard in its own home turf in the near future.
Take away
Nevertheless, Walmartâs sharpening of its online retail sales arsenal will certainly eat into the operating margins of the ecommerce players once the three giants starts their wrestle to capture market caps in the online market domain. However the way Alibaba has joined the big retail league with a bang it would be hard to predict the fate of the competition at this stage. Though Alibaba is a debutant yet it holds enough firepower to give both Walmart and Amazon a run for their money.
On the other hand with Amazonâs operating margins, can Alibaba thrive? Itâs unclear at this point. However, one outcome is certain from this clash of the titans, that the "customers will be the ultimate winners."
