Can Alibaba Group Holding Ltd (BABA) Ring In Bad Days For eBay Inc (EBAY)?

After a very successful big ticket IPO, Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) has entered the ranks of some of the world’s most well-known e-commerce companies like eBay Inc (NASDAQ:EBAY) and Amazon.com Inc. (NASDAQ:AMZN). Alibaba has also set a benchmark for other e-commerce companies especially for other Chinese companies looking to get listed in the U.S.

The market capitalization of Alibaba Group Holding Ltd (NYSE:BABA) exceeds that of Amazon and eBay. As on September 25^th, 2014, the market capitalization for Alibaba is around $218 billion compared to approximately $65 billion for eBay and $149 billion for Amazon. Also with profits for last year ended 31^st March, 2014 being $3.7 billion, the Chinese e-commerce giant is more profitable than eBay Inc (NASDAQ:EBAY) and Amazon.com Inc. (NASDAQ:AMZN) combined together.

Even though eBay Inc (NASDAQ:EBAY) has been dominating the U.S. e-commerce segment for a long time, Alibaba Group Holding Ltd (NYSE:BABA) seems to be very much capable of providing a very tough competition to the U.S. giant.

One of the main reasons for Alibaba Group Holding Ltd’s (NYSE:BABA) increased competitiveness against eBay Inc (NASDAQ:EBAY) is the increase in financial strength of the company due to rapid expansion of its revenue base in its hometown China. Moreover, with the recent $21.8 billion IPO, the company has increased its cash base to expand its business internationally by organic, as well as inorganic manner through acquisitions. Moreover, Alibaba has listed the U.S. as among the most key business markets apart from Russia and Brazil.

Another reason for tough competition is the comparatively lower transaction fees charged by Alibaba to its sellers i.e. around 5% of the value of gross merchandise, compared to around 8% for eBay Inc (NASDAQ:EBAY). The lower fees will help Alibaba in attracting more U.S. sellers to its platform for selling their merchandise.

Third reason is the recent security breach at eBay which had a negative sentiment among consumers, seen by the flat growth in year-on-year income for the 2^nd quarter when the breach took place. The breach led eBay Inc (NASDAQ:EBAY) to ask its customers to change their passwords for security reasons. Such a negative sentiment can also lead to consumers shifting to other players like Alibaba Group Holding Ltd (NYSE:BABA).

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