Dear Mr. Berko: I’m trying to decide whether to invest $25,000 in 50 shares of Amazon or 300 shares of Alibaba Group. Which would you prefer and why?
— M.R., Ann Arbor, MI
Dear M.R.: The gurus at Schwab, Credit Suisse, Bank of America, Raymond James, UBS and six other Wall Street firms have “buy” recommendations on Amazon. While the masterminds at JP Morgan, Market Edge, Reuters Research, S&P Capital, Robert Baird and seven other Wall Street stalwarts rank Alibaba Group as a “buy.” Alibaba Group (BABA-$80) is a clone of Amazon.com (AMZN-$700). Some BABA aficionados insist that everything AMZN does, BABA a heck of a lot better. Well … maybe!
Read the following comparisons slowly and carefully. BABA has 36,500 employees, 2015 revenues of $15.5 billion, net income of $4.5 billion and a market cap of $185 billion. AMZN has 231,000 employees, revenues of $107 billion, net income of $600 million and a market cap of $275 billion. But something here is egregiously wrong. BABA generated $15 billion in revenues and with net profit margins of 30 percent, earned $4.5 billion. AMZN generated $110 billion in revenue and with net profit margins of 0.6 percent, earned a niggardly $600 million.
Something’s terribly wrong here: Either AMZN’s CEO Jeff Bezos hasn’t been taking his meds or BABA’s CEO Jack Ma is a black sheep and is cooking BABA’s books. But the difference in earnings performance between AMZN and BABA is like molehill compared to a mountain.