Analysts have called e-tailer Alibaba Group Holding Ltd “Amazon of China” and for good reason.
Alibaba is one of the few e-commerce companies in the world that can come close to Amazon’s size and growth potential.
By Guy Avtalyon
Update 08/11/2019: Alibaba stock (NYSE:BABA) broke out the $185 level and scored the high. Yesterday it was traded at $186.66.
Alibaba stock was traded on Tuesday, November 5 at $182,00 which means that it needs to rally less than 2% to reach $185, the new maximum this year. The best Chinese stocks need to clear one crucial level to be able for a breakout. It is $185 level, a very important level that might give it the strength to move up and hit the $210 the highest price ever got in 2018.
Over the last almost a year and a half we can notice a range of higher lows, so we can easily say it is positive. Yes, but we can also see a set of lower highs. If Alibaba move over $185 that will be a new high and good level for increasing to the $210, historically highest high.
It will be interesting to watch this stock over this month.
Is Alibaba able to do so?
Alibaba reported Q3 earnings on November 1. All expectations are beating because the company reported an incredible increase in sales. The online-retail business rose an awesome 40% year over year in the September quarter.
But that’s not all. The real rise will come on China’s Singles Day on November 11. That is a shopping storm. The original aim of this holiday was dedicated to single people to celebrate not being in relationships. But it turned into something like Black Friday but more huge, more intensive, a real shopping storm. Today it is an indicator of buyers’ sentiment and sales growth. Can you guess who played the big? Maybe the biggest role in turning this holiday to insane shopping of everything has Alibaba.
Singles Day began as a weird celebration for single people in China back in the 1990s. Just write November 11as numbers only. It is 11. 11, right? Singles Day started as a kind of anti-Valentine’s Day when students at Nanjing University began celebrating the fact they are single.
After 10 years Alibaba literally adopted that day and turned it in a day when everyone, no matter single or not, orders themselves a gift.
Online shoppers in China made $30.8 billion in sales last year on that day. This spending orgy has surpassed Cyber Monday in the US for online shopping made on a single day.
Since last year’s score was 27% higher than a year ago, what can we expect this year? We are afraid that any forecasts will be beaten. Have in mind that Alibaba made a billion dollars in sales in the first 2 minutes shopping (actually, it needed only 90 secs). A real retail phenomenon! And Alibaba is a recorder.
Alibaba.com (NYSE:BABA) is the biggest e-commerce and cloud player in China.
In its Q2 earnings report, we can see its revenue increased by 40% annually to $16.65 billion v.s. estimated $180 million.
Company’s generally accepted accounting principles or GAAP net income, include a big profit from its stake in the fintech company Ant Financial, which rose 288% to R$9.9 billion, which is $3.85 per share. If we exclude that profit and some others, the net income increased 40% $4.58 billion, or $1.83 per share. Estimations were beaten again.
After the Q2 earnings report the stock price jumped but for a short probably because of investors’ worries toward the U.S.-China trade war. Also, the economic slowdown in China had an influence.
Should you enter a position in Alibaba?
Alibaba’s focus commerce revenue grew 40% annually, its operating profit rose 32%, preserving its position as Alibaba’s entirely profitable venture.
There are some concerns about the Chinese economy’s slowdown.
Should you invest in Alibaba stock?
Revenue growth of 40% is an amazing amount for a company of virtually any volume. But keep in mind that Alibaba is the world’s seventh-most valuable public company. So, that percentage is a miracle.
The number of their active consumers increased by 19 million last quarter and now they have 693 million users. They have 785 million mobile monthly active users, which is 30 million more over three months. Alibaba aims to have more than 1 billion buyers by 2024, and it looks like it will reach that goal.
How to invest in Alibaba
The best way to invest in Alibaba wisely is by having a long horizon. The company has a fantastic position, its strength in e-commerce is supported by its huge data insights on Chinese buyers, also its increase in market share in the cloud computing industry.
Also, there’s the Chinese growing middle class with increased buying power. The extra income has proven to be important to Alibaba’s continued high growth. Also, there is the Chinese government as a safety net. China supports its favorite companies on the international stage, that’s a fact. Protectionism from the Chinese government works fully in favor of BABA stock, backing it to enter the “buy” choice.
The drawbacks of Alibaba stock
The founder, Jack Ma, stepped down as chairman of the board in September this year. That is a signal the risk is here. What lies behind the company’s founder and former CEO leaving? The other problem is an extremely high bar the Alibaba set for itself.
The risk is that this growth will decelerate. But at what speed? The analysts predicted speed or it will be due to a quick sale by growth investors?
Will Alibaba’s success continue?
The company has one of the most advantageous competitive aspects.
Alibaba’s large market share in plenty of high-growth, scalable, tech-based fields makes it dominate in the coming years. But something must be taken into consideration. China has a great impact on the company, honestly too great. China’s government’s influence is a risk by itself. The additional risks may come due to the trade war. Just compare Alibaba”s valuation to results they have in the last few quarters and you will conclude that investors are paying attention to the trade war.
Alibaba stock trades at 32 times earnings. Is it in line with revenue growth of 40% and earnings per share increased by 36 %? It’s low multiple. Maybe that’s not a wonder, with shares trading lower than they did 18 months ago. Buying Alibaba stock is a calculated risk and one that could pay very soon if the trade war ends.