Alibaba and’s Competitive Nature Might Lead to Vipshop

Alibaba and are soon to be public companies, and following their IPOs, don't be surprised if both show an interest in Vipshop.

May 17, 2014 at 9:45AM

Chinese e-commerce leaders and Alibaba have both filed for IPOs, creating two of the biggest IPOs this year, challenging Amazon (NASDAQ:AMZN) as Wall Street's favorite online retailer. While the timing of their filings appears in unity, it more than exemplifies a competitive nature of not allowing one to gain an advantage over the other, such as investments in Weibo (NASDAQ:WB) and from Tencent Holdings (NASDAQOTH:TCEHY). However, given the cash both companies are about to earn, and the ever-growing competition, don't be surprised if Vipshop (NYSE:VIPS) becomes a spotlight stock.

2 new e-commerce companies to hit Wall Street
The filings have occurred, and one day very soon, both Alibaba and will be public companies on U.S. markets. These are two of the most anticipated IPOs of the last few years, especially Alibaba, as the growth of both companies is stunning. While similar as e-commerce juggernauts, the two are very different, as Alibaba creates the majority of its revenue through advertising, and's business model appears similar to Amazon.

In regard to Alibaba, its IPO filing showed revenue of $5.5 billion in 2013, growth of 73% over 2012, and net income of $1.35 billion. The company created this revenue with its industry-best $248 billion worth of gross merchandise volume, including more than 230 million active buyers. The company's valuation is expected to fall in the range of $150 billion-$200 billion, and in selling a 12% stake, it should raise $18 billion-$24 billion. filed a $1.5 billion IPO back in January, which has likely risen, and many believe the company's market capitalization will now exceed $15 billion. As previously noted, the company operates a business strategy that is similar to Amazon, thus investing heavily into its own company, including its own couriers and warehouses. saw growth of 71% in the first nine months of 2013, creating revenue of $8.04 billion and net income of $10 million. Hence, with a profit margin of 1.2%, not only looks like Amazon, but is considered by many to be a second chance to invest in fast-growing Amazon.

Their growing competition
Despite the size disparity between these two companies, with Alibaba clearly being larger, and Alibaba are highly competitive, neither allowing the other to gain much of an operational advantage. This is most evident in the timing of the IPOs, but also investments in social media channels to bolster advertising presence. In many ways, they follow each other's lead.

Specifically, Alibaba is a large investor in Weibo and owns 32% of the company. Last year, Weibo's revenue growth increased 190% to $188 million, and Alibaba's advertising/marketing sales accounted for 26% of its total revenue, a figure that's expected to rise. Thus, with Weibo's monthly active users growing 33% year over year, and at 129.1 million, Alibaba likely made a good investment. followed Alibaba, with a partnership in Tencent's WeChat. In particular, Tencent purchased a 15% stake in, which occurred in March. Essentially, this helps both companies, as it increases's exposure and will likely drive revenue growth for WeChat. For Tencent, WeChat has become increasingly valuable, as it finished its last quarter with 355 million monthly active users, an increase that's 121% over last year and three times larger than Weibo's users.

Where might they spend new money?
After the Alibaba and IPOs are complete, both companies will have a substantial amount of cash to spend. Therefore, with each company seeking a competitive edge, Vipshop might make an intriguing stock to watch.

Vipshop is another Chinese e-commerce company, smaller than, that operates a much different strategy of flash-selling. Essentially, the company buys products in bulk from its 350 different partnered brands, then sells certain goods at specific times. Hence, the increased quantity allows for cheaper prices, as brands are willing to work with Vipshop for promotional reasons.

On Wednesday, the company reported earnings, producing quarterly revenue of more than $700 million, good for year-over-year growth of 125.9%. Moreover, it expects growth of 118% in the second quarter and $785 million in revenue. The company saw its gross margin rise 150 basis points to 24.9%, and its number of active customers increased 5.6 million to 7.4 million total.

Final thoughts
Vipshop is becoming a legitimate e-commerce company, and therefore, it's a growing threat to Alibaba and With Vipshop's market cap being $10 billion, its valuation is relatively similar to's implied worth. However, a combined Vipshop and would create quite a power to battle Alibaba.

For Alibaba, Vipshop would give it access to an e-commerce channel that is growing rapidly, including its flash-sales model, which also provides access to more than 350 brands that may be willing to discount aggressively.

The final scenario is an Amazon take-over. Already, plans have been discussed of Alibaba and entering U.S. markets. Hence, Amazon acquiring Vipshop would give it a growing channel and a presence in China, perhaps even a hedge against Alibaba and

Regardless, and Alibaba are likely to remain competitive, and even more so once becoming a public entity. After successful partnerships with fast-growing social media channels, the next phase might be to absorb the competition. Examining the market, Vipshop looks like the best option, a company that would add value to any platform.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.


Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information