Alibaba Group Holding Limited (NYSE:BABA) and Amazon Are on a Collision Course in Europe
Alibaba (NYSE: BABA) and Amazon (NASDAQ: AMZN) generally aren’t considered competitors. Alibaba is the top e-commerce and cloud player in China, but Amazon dominates those two growing markets across many other countries.
However, Alibaba considers Europe to be a priority for its expansion beyond China. That expansion, which includes the launch of its AliExpress marketplace and Alibaba Cloud services across Europe, could set it up for a showdown with Amazon’s online marketplace and AWS (Amazon Web Services) in the near future.
How Alibaba could hurt Amazon in Europe
Alibaba launched AliExpress as a cross-border e-commerce platform in 2010. It started out with a business-to-business focus that let Chinese companies sell products to international buyers, but the platform gradually expanded to include business-to-consumer and consumer-to-consumer transactions.
AliExpress became the top e-commerce marketplace in Russia and one of the top websites in Brazil. Alibaba maintained that momentum by launching AliExpress in Europe last year with an initial focus on Spain, Italy, and Turkey. It also opened its first brick-and-mortar store in Madrid last August to showcase about 1,000 products from 60 brands.
To attract sellers, AliExpress aggressively undercut Amazon’s seller fees. That push convinced the department store chain El Corte Ingles to open stores on AliExpress, but major apparel brands like Mango and Benetton rejected Alibaba’s advances. Yet that strategy will likely continue, since the company believes that securing overseas shoppers will help it top a billion annual active shoppers worldwide by the end of fiscal 2024, then double to two billion shoppers by 2036.
Alibaba is adopting a similar strategy for its cloud platform business, which ranked third in the world after AWS and Microsoft‘s Azure in 2018, according to Gartner. To challenge those rivals in Europe, Alibaba is offering free trials and double-digit discounts on annual subscriptions.
The company currently operates just two data centers in Europe (in Frankfurt and London), compared to nine data centers in China. However, the overseas expansion of Alibaba Cloud — which already includes two data centers in the U.S., one in the Middle East, one in Japan, one in Australia, and four others across Southeast Asia — indicates that number will rise.
Should Amazon be worried?
Amazon doesn’t disclose its exact revenue from Europe. Instead, it only lists Germany, the United Kingdom, and Japan as its largest markets outside of the United States.
Germany and the U.K., which aren’t directly in AliExpress’ blast zone yet, generated $34.4 billion in revenue, or 15% of Amazon’s top line, in fiscal 2018. Its “rest of world” region, which include big AliExpress markets like Russia and Brazil, generated less than 11% of its sales.
Amazon is the top e-commerce platform across most European countries, but it faces tougher competition from smaller competitors than in the U.S. Leaked internal data revealed that Amazon controlled approximately 27% of Germany’s e-commerce market last year, while research firm Edge by Ascential estimates that it controls over 30% of the U.K. market.
Those are solid market share figures, but they don’t guarantee Amazon’s long-term safety from aggressive challengers like AliExpress, which is clearly willing to sacrifice its margins to grow its presence. Furthermore, the massive crowds at AliExpress’ store opening in Madrid indicate that European shoppers are drawn toward cheaper products from Chinese manufacturers.
AWS accounted for 11% of Amazon’s revenue in 2018, as well as 13% of its sales in the first nine months of 2019. That segment also generated 62% of the company’s operating profits during those three quarters, which offset the weaker profitability of its online marketplaces.
Alibaba, by comparison, subsidizes the growth of its unprofitable cloud business with its profitable commerce businesses. The difference in business models makes Alibaba a dangerous rival, since it’s willing to take bigger losses to hurt Amazon’s core profit engine.
Last but not least, Amazon’s market dominance could backfire. It already faces an antitrust probe in Europe, and brick-and-mortar retailers that feel threatened by Amazon could store their data on Alibaba Cloud instead of AWS — just as some U.S. retailers chose Azure over AWS.
The key takeaways
Alibaba’s expansion into Europe likely won’t affect Amazon over the next few quarters. However, long-term investors should be mindful of Alibaba’s overseas moves, since they could impact Amazon’s growth over the next few years or decades.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 203.29.
The projected upper bound is: 235.58.
The projected lower bound is: 219.39.
The projected closing price is: 227.49.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 30 white candles and 20 black candles for a net of 10 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 82.0575. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 10 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 70.70. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 7 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 142.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 7 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 1 period(s) ago.
Rex Takasugi – TD Profile
ALIBABA GRP ADR closed down -3.990 at 226.490. Volume was 7% above average (neutral) and Bollinger Bands were 9% wider than normal.
Open High Low Close Volume___
230.090 230.100 224.930 226.490 3,603,308
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 220.37 201.11 179.36
Volatility: 31 25 35
Volume: 2,643,627 4,073,496 3,504,246
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
ALIBABA GRP ADR is currently 26.3% above its 200-period moving average and is in an upward trend. Volatility is Our volume indicators reflect very strong flows of volume into BABA.N (bullish). Our trend forecasting oscillators are currently bullish on BABA.N and have had this outlook for the last 52 periods. Our momentum oscillator is currently indicating that BABA.N is currently in an overbought condition.
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