In mature and efficient markets, the release of results has always been a litmus test of stock prices. If the results are stunning and exceed expectations, there will often be a wave of gains, while the results will fall short of expectations and share prices will fall.

On January 31, 2020, Amazon.Com Inc released results for the fourth quarter of 2019, with revenue up 21% and net profit up 8%, both exceeding market expectations, and share prices rose 7.38% on the same day. You know, Amazon.Com Inc's profit fell 26% last quarter compared with the same period last year. At the same time, Amazon.Com Inc raised his revenue guidance for the first quarter of 2020. Since the fourth-quarter results were announced, its share price has risen by 15%.

Where's BABA?

Also live up to expectations, Q4 financial results fully exceeded market expectations. Revenue growth of 38 per cent and Non-GAAP net profit growth of 56 per cent are well ahead of expectations. In particular, Taobao Live is driving the growth of users and GMV as a new shopping scene, with the number of monthly active users watching Taobao Live and GMV driven by Taobao Live more than doubling as of December 2019. In addition, cloud computing revenue exceeded 10 billion yuan for the first time, with a growth rate of more than 60%.

Judging from the trend of the stock price, BABA's share price did not rise sharply two days after the financial report, so is there any opportunity to rise further after that? BABA VS Amazon.Com Inc, who has a better chance?

Amazon.Com Inc's share price lags behind

We all know that BABA and Amazon.Com Inc, as leaders in the e-commerce industry, have always highlighted the word "stable"-although they are already very large, they are still dancing like elephants.

Precisely because the fundamentals of both are stable, if you look at the rise and fall of the share price, BABA rose 55% in 2019, while Amazon.Com Inc rose 23% in 2019. Amazon.Com Inc's increase not only lags far behind BABA, but also lags behind other major technology giants-Apple Inc 2019 up 90%, Microsoft Corp 2019 up 58%, Alphabet Inc-CL C 2019 up 57%, and Alphabet Inc-CL C 2019 up 28%.

Of course, there is a reason why Amazon.Com Inc's share price lags behind.

What was the market worried about before?

After Amazon.Com Inc's financial results last quarter, the stock price plummeted by 7%. The market has been worried that the "one-day distribution" promoted by Amazon.Com Inc will increase costs, thus further compressing the profit space. In addition, Amazon.Com Inc's cloud computing business is facing fierce competition from Microsoft Corp and Alphabet Inc-CL C, and the growth rate has declined, which suppresses the performance of Amazon.Com Inc's stock price.

However, after the release of the fourth-quarter results, Amazon.Com Inc took practical actions to allay investors' worries. Although "one-day distribution" increased costs, it was not as serious as imagined. On the other hand, "one-day distribution" contributed more revenue to the company. Operating income in the fourth quarter was 87.437 billion US dollars, up 21 percent from the same period last year, and the market is expected to reach 86.02 billion US dollars. The growth of revenue is mainly driven by "one-day distribution". Amazon.Com Inc said users spent a record amount on Amazon.Com Inc during Christmas and other holidays, and said that during this period, one-day delivery and day-to-day delivery were three times as large as those in the same period.

In addition, revenue growth in the closely watched cloud computing services remained above 30%, dispelling investors' concerns about fierce competition in the cloud computing sector. Revenue from cloud computing AWS is close to $10 billion per quarter.

Therefore, we saw the sudden outbreak of Amazon.Com Inc's stock price after a year of silence.

It can be seen that due to the strong fundamentals, the elimination of worries about Amazon.Com Inc, Amazon.Com Inc's share price is falling, this trend will probably continue this year.

Second, how to look at the valuation of BABA and Amazon.Com Inc?

By the overnight close of US stocks on February 15, Amazon.Com Inc (AMZN) had a market capitalization of $1.0628 trillion, BABA had a market capitalization of $589.2 billion, and Amazon.Com Inc had a market capitalization of about twice that of BABA, but in fact, BABA was more profitable.

BABA's net profit in the last four quarters was 25.9 billion yuan, 21.4 billion yuan, 72.6 billion yuan and 52.2 billion yuan respectively, with a cumulative net profit of 172.1 billion yuan. BABA's net profit is more than twice that of Amazon.Com Inc, but his market capitalization is about half of Amazon.Com Inc's.

At the same time, in terms of revenue growth, BABA also has the upper hand for a long time.

From the valuation point of view, BABA price-to-earnings ratio of 24 times, about Amazon.Com Inc 1x4, Amazon.Com Inc dynamic PE of 92 times.

Does this mean that BABA has more investment opportunities?

Just look at BABA's PE, the current valuation of 24 times is indeed a long-term low.

Just PE to measure the value of Amazon.Com Inc's investment is of little significance, for Amazon.Com Inc, it is more to look at free cash flow.

Over the past decade, Amazon.Com Inc's share price has basically followed free cash flow. As of December 30, 2019, Amazon.Com Inc's official free cash flow (TTM) was $25.825 billion, up 33 per cent from a year earlier. At present, Amazon.Com Inc's market capitalization is 1.0628 trillion US dollars, and the market capitalization / free cash flow is about 41.2 times, which is slightly more prominent than the past 30 times, but we take into account Amazon.Com Inc's free cash flow growth in the past three years, which is relatively reasonable.

Similarly, as can be seen in the picture above, it is also unreasonable to estimate BABA's market value according to free cash flow, which is essentially determined by the different modes of operation adopted by the two enterprises.

Generally speaking, from the valuation point of view, BABA's valuation is more attractive, but Amazon.Com Inc's valuation is also relatively reasonable, its free cash flow is growing rapidly, and its long-term value is also obvious.

Third, the future growth trends of both are very certain

AWS has become Amazon.Com Inc's "cash cow".

Amazon.Com Inc's latest financial report shows that although AWS faces increasingly fierce product competition, especially the threat from MicrosoftAzure and Google Cloud. However, due to years of technology investment and iteration, AWS has a huge lead in terms of capacity, services, and functionality.

In 2019, AWS launched about 77 new products, functions and services, covering general computing chips and AI reasoning chips, computing infrastructure, data warehouse, database and PaaS services, AI and edge computing, etc., which supported AWS's revenue growth of over 30%. AWS's sales rose by $2.5 billion in the quarter, exceeding the overall annual total revenue of most cloud computing companies.

At the same time, in the digital advertising market, Google and Facebook Inc together account for 60% of advertising revenue, but Amazon.Com Inc is impacting their monopoly pattern.

Advertising is one of Amazon.Com Inc's fastest growing areas this quarter, and it shows no sign of slowing down. This time, it also lived up to expectations, leaving other companies far behind at a growth rate of 41%. Cowen estimates that Amazon.Com Inc's advertising revenue will reach $17.6 billion this year, an increase of 36% over 2019 and $46.6 billion by 2025.

Similarly, this quarter, BABA's financial report blossomed more, and his attitude towards future growth was highlighted.

Cloud computing has exceeded 10 billion for the first time, and the loss has further narrowed. Cloud computing, as BABA's second largest revenue business, saw its revenue grow 62% year-on-year to 10.721 billion yuan in this fiscal quarter, exceeding 10 billion yuan for the first time in a single quarter. The main reason for the growth is the growth in revenue contributions from both public cloud and hybrid cloud businesses. After adjustment, EBITA lost 356 million yuan, which further narrowed the loss.

Under the epidemic, BABA continued to sink, Taobao live and new retail seized the high point.

Taobao Live has become one of the fastest growing and effective marketing models. By December 2019, the number of GMV generated by Taobao Live and the number of monthly active users watching Taobao Live had more than doubled compared with the same period last year. In addition, 54% of the total GMV of Singles'11 comes from consumers in less developed areas.

Quarterly income from local living services rose 47 per cent year-on-year to 7.584 billion yuan, while GMV from less developed areas grew by about 40 per cent. According to QuestMobile data, the average daily DAU of the box horse App during the Spring Festival was 2.95 million, an increase of 127.5% over the same period last year. The average daily DAU ranks first among many fresh e-commerce companies APP, and the growth rate is second on the screen.

Looking to the future, this epidemic will have an impact on BABA's revenue and profits in the first quarter of 2020, but in the long run, it will not affect BABA's long-term growth logic, but will accelerate BABA's new growth point.

Summary: unstoppable flywheel effect

What is the flywheel effect?

The flywheel effect means that in order to make a stationary flywheel rotate, you have to make a lot of effort at the beginning, pushing it round and round again and again, and each turn is very laborious, but each lap of effort will not be wasted, and the flywheel will rotate faster and faster. After reaching a certain critical point, the gravity and impulse of the flywheel will become part of the driving force. At this point, you don't have to make any more effort, the flywheel will still rotate fast and keep turning. This is the "flywheel effect".

The flywheel effect is becoming a strong driving force for BABA and Amazon.Com Inc to drive growth.

As the largest digital business empires in China and the United States, BABA and Amazon.Com Inc share strong similarities from the "mission, vision and values" at the bottom to the flywheel model that drives the company's long-term growth.

Both of them are customer-centered, choose e-commerce business as the bottom flywheel and derive similar growth flywheels, based on the bilateral network effect that e-commerce business serves both C-end customers and B-end merchants at the same time. Directly shaped the underlying character of both "enablers", and finally created the B-end king of China and the United States.

The scary thing is that BABA and Amazon.Com Inc's flywheels are still accelerating, and they are becoming the most important operating system and infrastructure for business in the future.