When it comes to the digital ad market, Alibaba (NYSE:BABA) is doing everything it can to drive Alibaba stock higher.
Remarkably, in the digital-ad sector, Alibaba is beating Amazon (NASDAQ:AMZN) at its own game. Over the long-term, that will greatly boost the BABA stock price.
But first, here’s the back story.
Amazon’s Ad Growth
One of the big stories about Amazon in 2019 is how well the e-commerce giant is doing in the digital-ad market. Although the space has long been the exclusive domain of Google and Facebook (NASDAQ:FB), Amazon has managed to elbow its way into the mix in relatively short order.
That’s one of the many reasons why Amazon’s stock is up 32% in 2019.
As the e-commerce company’s core retail business has slowed, Jeff Bezos and company have worked to find new sources of growth. The digital-ad market happens to be one of those growth areas.
Estimates suggest Amazon’s annual-digital-ad revenue over the next five years will jump to $40 billion, up from $10 billion in 2018.
Alibaba also has a reasonably strong and growing ad business. In fact, its ad business is larger and growing more rapidly than Amazon’s.
I wouldn’t buy Alibaba stock solely for this reason. However, it certainly should make investors think twice about choosing Amazon over BABA stock..
China vs. America
eMarketer estimates that Alibaba’s digital-2019 ad revenues will come in at $29.2 billion, more than double that of Amazon. That puts BABA in third place in global digital-ad revenue, behind Facebook and Google, which are expected to generate digital-ad revenue of $67.4 billion and $103.7 billion, respectively.
Alibaba’s digital ad revenues are so substantial that the fifth, sixth, and seventh-largest sellers combined are expected to generate $30.4 billion of digital-ad revenue, just 4% more than Alibaba. Yet, all anybody can talk about is how great Amazon is doing in the advertising business.
I think it’s time to give Alibaba its due. That’s especially true in light of the differences between the Chinese and U.S. digital ad markets.
China’s digital-ad spending is expected to grow from $65.4 billion in 2018 to $134.3 billion in 2023. In 2019, the country’s digital-ad spending is expected to increase by 22% to $79.8 billion,.
In the U.S., digital ad spending is projected to grow from $108.6 billion in 2018 to $201.8 billion in 2023. That’s meaningfully slower growth than in China.
The Bottom Line on Alibaba Stock
On the one hand, the fact that Alibaba controls over a third of all Chinese digital advertising is an impressive statistic.
On the other hand, Amazon is a major participant in the U.S. digital ad market, which is expected to grow almost as quickly as China’s over the next five years. Additionally, AMZN only has 9% of the entire U.S. market at the moment.
It’s much easier to go from 9% to 18% than it is to go from 35% to 70%. From that perspective, some could surmise that Amazon’s got an easier growth path when it comes to the digital-ad market.
However, that viewpoint assumes that Alibaba won’t make any headway in digital ads outside of China. I believe that’s much too pessimistic, given the company’s international expansion possibilities.
So, the owners of Alibaba stock should continue to pay attention to BABA’s advertising business because BABA just might have an even better opportunity in that area than Amazon does at this point.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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