Despite macroeconomic uncertainties, the Internet industry is poised for growth, driven by its integral role in modern life, accelerated digitalization, and smart infrastructure expansion. Global adoption of digital technologies and increased internet usage additionally contribute to the industry's success.
In this piece, I have evaluated whether it is worth investing in Amazon.com, Inc. (AMZN), and Alibaba Group Holding Limited (BABA) amid the rising inclination toward internet-based services and e-commerce.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the internet industry is well-positioned for growth.
The pandemic accelerated the adoption of digital solutions for daily needs, driving a surge in internet usage. This led to growth in internet-based services like social media, e-commerce, online learning, and remote work tools, creating opportunities for internet-based service providers worldwide.
According to Statista, in 2024, the internet industry anticipates a continued rise in social network engagement, with the share of global internet users visiting these platforms per month projected to increase from 77.5% in 2019 to 82.3% in 2024. The forecast also predicts that there will be over 4.4 billion monthly active social media users by 2025.
Moreover, the online shopping industry is anticipated to experience heightened spending, with 42% of surveyed U.S. respondents intending to increase their online purchases.
Considering these conducive trends, let’s take a look at the fundamentals of the featured stocks.
Amazon.com, Inc. (AMZN)
AMZN engages in the retail sale of consumer products and subscriptions through online and physical stores in North America and internationally. It operates through three segments: North America, International, and Amazon Web Services (AWS). The company's products offered through its stores include merchandise and content purchased for resale; and products offered by third-party sellers.
On January 10, 2024, AMZN announced the Buy with Prime for Salesforce Commerce Cloud integration, offering Salesforce merchants features like searching and filtering for Prime-eligible items. The solution, available by invitation, seamlessly integrates into merchants' existing online stores, providing the shopping benefits of Prime, such as fast, free delivery and easy returns.
On December 20, 2023, AMZN’s Amazon Web Services launched its second infrastructure region in Canada, AWS Canada West (Calgary) Region, providing customers with additional options for running workloads with greater resilience, availability, and lower latency.
AWS plans to invest approximately $17.9 billion in Canada through 2037, supporting over 9,300 full-time equivalent jobs annually. The new region is estimated to add about $4.1 billion to Canada's GDP through 2037.
In terms of the trailing-12-month gross profit margin, AMZN’s 46.24% is 30.4% higher than the 35.47% industry average. Its 9.88% trailing-12-month Capex/Sales is 226.9% higher than the 3.02% industry average. Moreover, the stock’s 6.57% trailing-12-month levered FCF margin is 21.6% lower than the 5.40% industry average.
AMZN’s total net sales for the fiscal third quarter that ended on September 30, 2023, increased 12.6% year-over-year to $143.08 billion. Its operating income rose significantly over the prior-year quarter to $11.19 billion. Moreover, the company’s net income and EPS came in at $9.88 billion and $0.94, up significantly over the prior-year quarter, respectively.
For the quarter ended December 31, 2023, AMZN’s EPS is expected to increase considerably year-over-year to $0.79. Its revenue for the same quarter is expected to increase 11.3% year-over-year to $166.11 billion. It surpassed the consensus EPS estimate in three of the trailing four quarters. Over the past year, the stock has gained 54.6% to close the last trading session at $151.71.
AMZN’s POWR Ratings reflect a positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Growth, Momentum, and Quality. It is ranked #12 out of 55 stocks in the Internet industry. To see AMZN’s Value and Stability ratings, click here.
Alibaba Group Holding Limited (BABA)
Based in Hangzhou, People's Republic of China, BABA provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage with their users and customers internationally. The company operates through seven segments: China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, and Innovation Initiatives and Others.
In terms of the trailing-12-month EBIT margin, BABA’s 14.66% is 92.9% higher than the 7.60% industry average. Its 14.50% trailing-12-month net income margin is 217.7% higher than the 4.56% industry average. Likewise, the stock’s 3.75% trailing-12-month Capex/Sales is 24.2% higher than the 3.02% industry average.
For the fiscal second quarter that ended September 30, 2023, BABA’s revenue increased 8.5% year-over-year to $30.81 billion. Its non-GAAP net income and non-GAAP earnings per ADS increased 18.8% and 21% over the prior-year quarter to $5.51 billion and $2.14, respectively. Moreover, its adjusted EBITDA came in at $6.75 billion, up 13.7% year-over-year.
BABA’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #11 out of 40 stocks in the B-rated China industry. It has a B grade for Momentum and Quality. Click here to see BABA’s Growth, Value, Stability, and Sentiment ratings.
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AMZN shares rose $1.28 (+0.84%) in premarket trading Thursday. Year-to-date, AMZN has gained 0.64%, versus a -0.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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