With the rapid expansion of e-commerce, the surge of social media, and the emergence of new advanced technologies, the Internet industry is thriving. Against this backdrop, let’s analyze the compelling factors that make Internet stocks Alibaba (BABA) and Amazon (AMZN) ideal to buy now. Keep reading….
The growing use of the Internet around the world shows no signs of slowing down. With the widespread use of the Internet, an increasing number of people are immersing themselves in online activities, resulting in the rise of e-commerce, social media networking, online banking and financial management, streaming services, remote and collaboration tools and more.
Given this backdrop, it may be wise to invest in fundamentally sound Internet stocks Amazon.com, Inc. (AMZN) and Alibaba Group Holding Limited (BABA) for potential gains.
In recent years, the Internet industry has experienced a revolutionary transformation. Over the past decade it has transformed from static web pages into an interactive platform that encourages user engagement and connections. Widespread adoption of the Internet and the proliferation of digital technologies have reshaped how we communicate, work, shop and access information.
Internet users visiting social networks have increased rapidly in recent years. In 2019, 77.5% of internet users globally visited a social network, and the corresponding figure for 2024 is expected to reach 82.3%.
China, with 1.05 billion users, and the United States, with 311 million users, are among the countries with the largest number of internet users. This growth of the Internet is fueled by various factors, including the affordability of smartphones and mobile data, along with the popularity of online businesses such as e-commerce, streaming services and online learning.
With the high usage of the Internet, e-commerce traffic has also increased. Mobile devices drive 65% of e-commerce traffic, adding to the massive population engaged in online services.
The e-commerce market size is estimated to be $8.80 trillion in 2024. Furthermore, it is expected to result in a market volume of $18.81 trillion by 2029, growing at a CAGR of 15 .8% during the forecast period (2024-2029).
According to recent industry calculations, the United States is expected to rank first among 20 countries globally in retail e-commerce development from 2024 to 2028, with a CAGR of 11.8%. The US e-commerce market is currently worth $843 billion. By 2026, the value of the online retail market in the United States is expected to surpass the trillion-dollar mark.
Considering these favorable trends, let’s take a look at the fundamentals of Internet stocks: AMZN and BABA.
Amazon.com, Inc. (AMZN)
AMZN engages in the retail sale of consumer products, advertising and subscription services through online and physical stores internationally. It operates through three segments: North America; International; and Amazon Web Services (AWS). It also produces and sells electronic devices, such as Kindle, Fire tablets, Fire TV, Echo, Ring, and Blink.
On March 4, 2024, AWS, an AMZN company, launched an infrastructure region in the Kingdom of Saudi Arabia. The AWS Region will allow customers to run workloads and securely store customer content in the Kingdom of Saudi Arabia, while offering end users even lower latency. AWS plans to invest more than $5.30 billion in the plan.
The announcement of the new region reflects AWS’ long-term commitment to meeting the high demand for cloud services in the Kingdom of Saudi Arabia and across the Middle East. It will offer greater choice to run your applications and serve end users, from data centers to customers such as developers, startups, entrepreneurs and enterprises.
On February 26, AWS announced its collaboration with NTT DOCOMO, INC. (DOCOMO), Japan’s leading mobile operator with more than 89 million subscribers, to commercially deploy DOCOMO’s 5G nationwide open radio access network (RAN) in Japan. AWS has also joined DOCOMO’s OREX initiative to advance the mobile industry’s Open RAN efforts globally.
AWS will deploy Amazon Elastic Kubernetes Service Anywhere (Amazon EKS Anywhere), a container management software, which will allow the operator to easily run and optimize its 5G Open RAN. Amazon EKS Anywhere will also enable easier integration with other AWS services across AWS Regions, further expanding AWS operations.
AMZN’s trailing 12-month gross profit margin and EBIT margin of 46.98% and 14.88% are 31.2% and 37% higher than the respective industry averages of 35.80% and 10 ,86%. Likewise, the stock’s trailing 12-month net profit margin of 5.29% is 11.1% higher than the industry average of 4.76%.
For the fourth quarter ended December 31, 2023, AMZN’s total net sales increased 13.9% year over year to $691.96 billion, of which net sales from North America were $105.51 billion dollars, indicating growth of 13% year-on-year. The company’s operating profit grew 382.6% from a year ago to $13.21 billion.
Furthermore, the company’s net income and EPS stood at $10.62 billion and $1, up 3721.6% and 3233.3%, respectively, from the prior-year quarter. Its total assets stood at $527.85 billion as of December 31, 2023, up from $462.67 billion as of December 31, 2022.
According to first-quarter 2024 guidance, the company’s net sales are expected to be between $138 billion and $143.50 billion, which is growth between 8% and 13% compared to first-quarter 2023. Its operating profit expected to range from 8 to 12 billion dollars. billion.
Analysts expect AMZN’s revenue and EPS for the first quarter (ending March 2024) to increase 11.9% and 171.5% year-over-year to $142.49 billion and $0.84, respectively. dollars. Additionally, the company has surpassed consensus estimates for revenue and EPS in all four trailing quarters, which is notable.
AMZN shares have gained 28.2% over the past six months and 85.1% over the past year, closing the latest trading session at $173.51.
AMZN’s bright outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. POWR Ratings are calculated by considering 118 different factors, each optimally weighted.
AMZN stock has a grade of A for growth and sentiment and a B for momentum and quality. In the B-rated Internet sector, AMZN ranks sixth out of 51 stocks.
Click here to access additional AMZN ratings (value and stability).
Alibaba Group Holding Limited (BABA)
Headquartered in Hangzhou, China, BABA provides technology infrastructure and marketing reach for better engagement between businesses and their customers around the world. It operates through seven segments: China Commerce; International trading; Local consumer services; Cainiao; Cloud; Digital Media and Entertainment; and innovation initiatives and others.
On February 5, 2024, it was announced that BABA would supply Tmall Global in China after receiving the initial set of approvals to NextPlat Corp, a global e-commerce provider, to launch its exclusive OPKO Health branded storefront. Initially, the new e-commerce storefront would support the sale of up to 40 personal health and wellness products.
On January 9, BABA announced the launch of its latest artificial intelligence (AI)-powered Smart Assistant features. The Smart Assistant, an AI-powered global sourcing tool, caters to both newcomers and seasoned entrepreneurs in the dynamic world of global trade.
BABA’s trailing 12-month EBIT and net income margins of 13.74% and 10.81% are 82.8% and 127% higher than their respective industry averages of 7.51% and 4, 76%. Likewise, the stock’s trailing 12-month leveraged FCF margin of 15.77% is significantly higher than the industry average of 5.53%.
BABA’s revenue for the third quarter ended December 31, 2023 increased 5.1% year-over-year to $36.67 billion. Its non-GAAP net income and non-GAAP EPS were $6.75 billion and $0.33, respectively. The company’s adjusted EBITDA increased marginally year-over-year to $8.39 billion.
As of December 31, 2023, the company’s cash and cash equivalents were $35.89 billion.
Street expects BABA’s revenue for the fourth quarter (ending March 2024) to increase 3.1% year-over-year to $30.52 billion. Likewise, the company’s EPS for the current quarter is expected to grow 2.7% year-over-year to $1.56. Additionally, the company has surpassed consensus EPS estimates in three of the trailing four quarters.
BABA shares have gained 3.1% over the past three months to close the latest trading session at $73.71.
BABA’s sonic foundations are reflected in its POWR ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has a grade of B for Momentum, Value and Quality. In the China sector, BABA ranks 14th out of 40 stocks.
In addition to the POWR ratings above, we also have BABA ratings for Growth, Sentiment, and Stability. Get all BABA ratings here.
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AMZN shares were unchanged in premarket trading Thursday. Year to date, AMZN has gained 14.20%, compared to a 7.25% gain in the benchmark S&P 500 index over the same period.
About the author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions.
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