The response from investors has been dramatic:
The amount of AWS revenue generated for Amazon has long been a source of speculation. Was the service, a cloud-based data management and storage service, even cost-effective?
The answer, as it turned out, was a resounding yes.
For the first quarter of fiscal year 2015, AWS generated revenues of $ 1.57 billion, compared with $ 1.1 billion for the same quarter in 2014. In addition, during these three years, AWS bought Amazon a profit in the first half of 2015 of $ 265 million with an operating margin of 17%.
Needless to say, Wall Street loved what it saw. Amazon, long known for its lack of interest in generating short-term profits, had built a fast-growing cash cow under the nose of Silicon Valley.
In the time elapsed, AWS continued to provide. In the second quarter of 2017, AWS sales amounted to $ 2.89 billion. A 42% increase over the second quarter of 2016. The division's operating income was astonishing 916 million dollars.
And that leads me to why Alibaba (NYSE: BABA) is so attractive today. As investors have learned, it has also created its own extremely profitable and cloud-based storage business.
Much gets even better
Alibaba's corporate results for its fiscal first quarter, reported on August 17, 2017, are not unusual. BABA reported adjusted earnings of $ 1.17 per share (effectively exceeding the estimated $ 0.92). Total revenues were $ 7.4 billion in the period, 56% more than in the same quarter last year.
While the main headlines focused on the robust growth of e-commerce in China, a much more interesting data point was found in the report: Alibaba Cloud. While still in its infancy, department revenues increased almost 100% to $ 359 million.
For now, Alibaba Cloud is a small part of the technology giant's frontline, but since Amazon's past is an indication, this could become a significant part of the business and help the already strong margins of the company.
Even better than Amazon, and with a much wider potential market
It was noted that Aliababa had more in common with eBay than with Amazon. It serves as a marketplace for hundreds of thousands of retailers to reach consumers, thus avoiding the need to incur massive investment costs to maintain inventory in stores.
This does not undermine Jeff Bezos' remarkable success. Your business changes the way goods are sold (and delivered). Alibaba simply has a more profitable business model. In fiscal year 2016, Amazon's gross margin was 36%. Alibaba was 63.5%. With the addition of a cloud service like Amazon AWS, Alibaba's ability to generate profit in the next few years has improved.
With its shares at 34 times, earnings estimates from S & P Global Market Intelligence, Alibaba shares may seem expensive. However, analysts estimate that the Company's EPS will increase to 31% per year until 2022, when they believe the company will earn just under $ 14.82 per share. This compares with Amazon's earnings growth profile. Analysts who follow the company expect Amazon to earn around $ 3.50 this year and increase its profitability to $ 36.72 by fiscal year 2021.
Alibaba has just had its moment AWS Amazon. And, through the icing on the cake, it trades on a multiple of profit less than the company with which it compares so often. Wise Fools would do well to give Alibaba a strong consideration as a complement to its portfolios.
