A tale of two companies: Matching up Alibaba vs. Amazon

Shu Zhang | Reuters

Founder and Executive Chairman of Alibaba Group Jack Ma

Chinese e-commerce site Alibaba beat sales estimates with 39 percent growth year-over-year for the quarter ending in March, the company said Thursday. The company's explosive growth showed no signs of slowing despite the overall slowdown in China's economy.

Still, the company is down nearly 3 percent for the year and off 0.7 percent for the past 12 months. Compare that with Alibaba's American rival (and in some ways counterpart), Amazon. The Seattle-based company is up 57 percent over the past year.

Each is its country's biggest e-commerce company, but the similarities pretty much end there. They're fundamentally different business models operating in very different economies.

Alibaba sells ads; Amazon sells stuff

Amazon, founded in 1995, was a star of the first dot-com boom, and its model is based on its online marketplace.

Three-quarters of Amazon's revenue comes from electronics and merchandise, while 23 percent comes from delivering digital media content. That media includes Amazon Prime, an annual fee-based subscription that includes streaming content as well as discounts on shipping items from the marketplace. A portion of revenue comes from third-party sales on Amazon.com from which the company takes a commission.

Alibaba on the other hand operates a number of commerce sites aimed at different types of sellers.

Together, the sites have 423 million annual active buyers and about 80 percent market share of e-commerce in China. Amazon, in a more crowded ecosystem, has about 30 percent in the U.S. In that sense, Amazon has further to go. Increasing its domestic footprint or expanding its already growing international sector could be an easy avenue. Amazon Prime also offers a growth stream.

The largest of Alibaba's sites, Taobao, is a fee-free marketplace that connects buyers and sellers, kind of like eBay without the bidding. The company generates revenue by selling ads against select pages and search results. In that way, Alibaba is similar to Google's PageRank.

Alibaba's recent growth is thanks largely to an expansion of mobile retail, which made up over $2 billion in the most recent quarter, a 149 percent year-over-year jump. The company has also seen growth expanding out of China's major cities and into more rural area.

While the Chinese economy has shown signs of fatigue, Alibaba has seen growth in consumption. Those things aren't necessarily contradictory when considered from a seller's perspective. With constricted consumption through traditional avenues, retailers are turning to Alibaba's platform of sites to reach a larger consumer base, both within China and without.

Profit and returns don't come together

So a lot of investors will ask: Should I buy Alibaba or Amazon? Alibaba appears profitable but faces headwinds evolving to a new economy and finding fresh customers. After a few years of inconsistent earnings, Amazon posted a net income of nearly $600 million for fiscal 2015, but anticipation for the company's success may have already driven the stock to overvalued status.

Both companies are trailing the market year-to-date. But Amazon is easily outpacing over the past 12 months with nearly 60 percent returns, while Alibaba and the S&P 500 are below their positions a year ago. Amazon's relative success this year is due to a huge jump at the end of April after reporting first-quarter earnings of $1.07 per share, beating estimates handily.

On Thursday, Alibaba fell short on adjusted earnings-per-share in the quarter with 47 cents compared with analyst estimates around 55 cents

Noted short seller Jim Chanos on Wednesday reiterated his bearish stance on Alibaba. "We just don't see how profitable or unprofitable that business is," he told CNBC.

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