The growing use of the internet worldwide shows no signs of slowing down. With widespread internet usage, an increasing number of individuals are immersing themselves in online activities, resulting in the surge of e-commerce, social media networking, online banking and financial management, streaming services, remote work and collaboration tools, and more.
Given this backdrop, it could 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 to an interactive platform encouraging user engagement and connections. The widespread adoption of the internet and the proliferation of digital technologies have reshaped the way we communicate, work, shop, and access information.
Internet users who visit social networks have spiked rapidly over the past years. As of 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 highest number of internet users. This growth of the internet is fuelled by various factors, including the affordability of smartphones and mobile data, along with the popularity of online activities such as e-commerce, streaming services, and online learning.
With the high internet usage, e-commerce traffic has also been surged. Mobile devices drive 65% of e-commerce traffic adding to the massive population quantum engaged in online services.
The e-commerce market size is estimated at $8.80 trillion in 2024. Further, it is anticipated 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).
As per recent industry calculations, the United States is expected to rank top among 20 countries globally in retail e-commerce development from 2024 to 2028, with a CAGR of 11.8%. The U.S. e-commerce market is currently valued at $843 billion. By 2026, the U.S. online retail market value is projected to surpass the trillion-dollar mark.
Considering these conducive trends, let’s take a look at the fundamentals of the 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 manufactures and sells electronic devices, like Kindle, Fire tablets, Fire TVs, Echo, Ring, and Blink.
On March 4, 2024, AWS, an AMZN company, launched an infrastructure region in the Kingdom of Saudi Arabia. AWS region will allow customers to run workloads and securely store customer content in the Kingdom of Saudi Arabia while serving end users with 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 a greater choice for running their applications and serving end users, from data centers to customers like 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 nationwide 5G Open Radio Access Network (RAN) in Japan. AWS also united with DOCOMO’s OREX initiative to promote the mobile industry’s Open RAN efforts globally.
AWS will deploy Amazon Elastic Kubernetes Service Anywhere (Amazon EKS Anywhere), a container management software, enabling the operator to run and optimize its 5G Open RAN easily. Amazon EKS Anywhere will also allow easier integration with other AWS services in AWS Regions, expanding AWS operations further.
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%. Similarly, the stock’s trailing-12-month net income margin of 5.29% is 11.1% higher than the industry average of 4.76%.
For the fourth quarter that ended December 31, 2023, AMZN’s total net sales increased 13.9% year-over-year to $691.96 billion, of which its net sales from North America were $105.51 billion, indicating growth of 13% year-over-year. The company’s operating income grew 382.6% from the year-ago value to $13.21 billion.
In addition, the company’s net income and EPS came in at $10.62 billion and $1, up 3721.6% and 3233.3% from the prior year’s quarter, respectively. Its total assets stood at $527.85 billion as of December 31, 2023, compared to $462.67 billion as of December 31, 2022.
As per the first quarter 2024 guidance, the company’s net sales are expected to be between $138 billion and $143.50 billion, or grow between 8% and 13% compared to the first quarter 2023. Its operating income is expected to range from $8 billion to $12 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. Further, the company has topped the consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.
AMZN’s stock has gained 28.2% over the past six months and 85.1% over the past year to close the last trading session at $173.51.
AMZN’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
AMZN’s stock has an A grade for Growth and Sentiment and a B for Momentum and Quality. Within the B-rated Internet industry, AMZN is ranked #6 of 51 stocks.
Click here to access additional ratings of AMZN (Value and Stability).
Alibaba Group Holding Limited (BABA)
Based in Hangzhou, China, BABA provides technology infrastructure and marketing reach for better engagement between businesses and their customers worldwide. It operates through seven segments: China Commerce; International Commerce; Local Consumer Services; Cainiao; Cloud; Digital Media and Entertainment; and Innovation Initiatives and Others.
On February 5, 2024, it was announced that BABA would provide Tmall Global in China following receipt of the initial set of approvals to NextPlat Corp, a global e-commerce provider, for the launch of its exclusive OPKO Health-branded storefront. Initially, the new e-commerce storefront would support sales of up to 40 personal health and wellness products.
On January 9, BABA announced the launch of its latest Smart Assistant features powered by artificial intelligence (AI). The Smart Assistant, an AI-powered global sourcing tool, caters to both newcomers and seasoned entrepreneurs in the dynamic world of global commerce.
BABA’s trailing-12-month EBIT and net income margins of 13.74% and 10.81% are 82.8% and 127% higher than the respective industry averages of 7.51% and 4.76%. Likewise, the stock’s trailing-12-month levered FCF margin of 15.77% is considerably higher than the industry average of 5.53%.
BABA’s revenue for the third quarter that ended December 31, 2023, increased 5.1% year-over-year to $36.67 billion. Its non-GAAP net income and non-GAAP EPS came in at $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 came in at $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. Moreover, the company has surpassed consensus EPS estimates in three of the trailing four quarters.
BABA’s shares have gained 3.1% over the past three months to close the last trading session at $73.71.
BABA’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Momentum, Value, and Quality. Within the China industry, BABA is ranked #14 of 40 stocks.
In addition to the POWR Ratings we’ve stated above, we also have BABA ratings for Growth, Sentiment, and Stability. Get all BABA ratings here.
What To Do Next?
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AMZN shares were unchanged in premarket trading Thursday. Year-to-date, AMZN has gained 14.20%, versus a 7.25% rise in the benchmark S&P 500 index during 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 analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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