Mad Money

Cramer: New catalyst could intensify Amazon selling

Alibaba vs. Amazon

(Click for video linked to a searchable transcript of this Mad Money segment)

If you hold Amazon, Jim Cramer hopes you have a strong stomach. Already down more than 20 percent year to date, the "Mad Money" host sees every reason for shares to decline even further.

"Don't get me wrong, I believe is an amazing company with a true visionary at the helm in the form of founder and CEO Jeff Bezos. But we don't trade companies, we trade stocks, and within a few months, I think something very worrisome is going to happen to the stock of Amazon," Cramer said.

It's the

Andrew Harrer | Bloomberg | Getty Images

Although you might be inclined to think the opportunity to own the largest e-commerce company in China would reignite interest in the space broadly, Cramer says it probably won't. He believes, strongly, it's bearish for Amazon.

"Let me explain. For years, Amazon has basically been unparalleled, the undisputed king of online retail. If you wanted to own an Internet-based retailer, then the Street has viewed Amazon as the obvious best-of-breed choice," he said.

But with Alibaba coming public, the dynamic changes.

"Portfolio managers who own e-commerce stocks will be faced with a choice. They can stick with Amazon or swap out into Alibaba," he said.

And looking at the metrics, Cramer thinks pros will chose Alibaba hands down.

Here's why:

First, Cramer says Alibaba is more dominant in China than Amazon is in the United States. Also Cramer says Alibaba beats Amazon in terms of total addressable market as well as growth potential and the magnitude of its profit margins.

But the crème de resistance may be the business model.

"Alibaba is not actually a retailer, it's a retail platform. The company connects merchants with consumers through its websites," Cramer explained. Alibaba makes money by taking a small commission on each sale and also selling ads to retailers who use the platform. "Because Alibaba's sites are closed to external search engines, the only way to advertise something you're selling on Alibaba's platform is through Alibaba itself."

All told, Cramer thinks Alibaba wins.

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"Don't get me wrong, I still think Amazon has a ton of room to grow, both in the United States and overseas," Cramer said.

But looking at the IPO and its impact, "Alibaba's numbers are so hot, I believe growth oriented money managers who like Amazon will love Alibaba. I don't think they'll want to own both, so when push comes to shove, I bet they sell Amazon and buy Alibaba."

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