Morgan Stanley: Alibaba's Opportunity In China 'Vastly Greater' Than Amazon's U.S. Potential

Morgan Stanley estimated last week that Alibaba Group Holding Ltd BABA's total addressable market stands at $10.6 trillion.

The figure has since been lowered to $6.7 trillion, one thing remains clear: the Chinese company's opportunity is still "vastly greater" than Amazon.com, Inc. AMZN's opportunity in the U.S., according to Morgan Stanley. 

The Analyst

Morgan Stanley's Brian Nowak revised his assumptions on Alibaba's TAM.

The Thesis

Nowak's $10.6-trillion assumption for Alibaba's TAM was questioned by some investors, so the analyst said he recalculated the figure using a similar model to Amazon in a Thursday note. 

Two changes were made to the analyst's assumption:

• Alibaba's fintech opportunity was lowered from $2.8 trillion to $179 billion based on a revised addressable revenue opportunity in consumption payments, wealth management, credit market and insurance.
• The analyst removed $1.2 trillion in sales of autos, food delivery and pharmacy, as these opportunities are already captured in the offline business.

As a result, Morgan Stanley's 2027 TAM estimate for Alibaba was revised lower from $19 trillion to $13.9 trillion, the analyst said. Nevertheless, the lowered assumption still implies Alibaba's China opportunity is anywhere from 1.6x to 2.5x larger than Amazon's U.S. TAM in 2027.

The economic data available to compare China's market to the U.S. market over the next several years varies, especially in the respective countries' definition of retail sales, Nowak said. Official Chinese statistics do not accurately reflect changes in household consumption and modern sectors like housing, autos, tourism, health care and insurance, he said. 

It may not be fair to compare Alibaba's business model to Amazon's given their unique business models, Nowak said.

Alibaba's core business provides transaction platforms and services to merchants, so it generates revenue through a commission. A portion of Amazon's business is a first-party model where the majority of revenue comes from items it sells itself.

The different business models are best reflected as follows, Nowak said: in 2017, Amazon's revenue was five times higher than Alibaba's, but its GAAP net profits were one-third of Alibaba's.

Price Action

Shares of Alibaba were trading higher by more than 1 percent Friday afternoon, while Amazon shares were down 0.11 percent. 

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