The economic environment is encouraging, the company is paying attention to its development, there is no reason to think that BABA isn’t able to deliver a strong growth next year.
Alibaba stock could deliver strong growth in 2020 valuing the company’s fundamentals. This company has a big challenge to surpass eventual issues due to the trade war between the US and China. But it looks like a possibility of “phase one” trade agreement is just around the corner.
Reversing tariffs on both sides, which will be included in phase one, should boost consumer demand in China. Boosting demand should increase the sympathy for BABA stock.
The company has recorded a 40% year-over-year revenue growth in the latest quarter. Also, the results for the past several quarters were good. In the cloud segment, it had 64% growth year-over-year.
This put together, make Alibaba stock a strong buy for 2020. And here is why.
The economic environment is encouraging for Alibaba stock
The most difficulties of trade are behind two countries now, since phase one of the trade war deal is completed. The fact is that 2020 is an election year in the US and no one wants to upset the voters.
On the other side, the fact is that China’s economy is slowing. Well, yes, but its GDP is increasing by 6% in the 3rd quarter. Moreover, retail sales jumped 8% in November, which is the sign that Chinese citizens have increased consumers’ demand based on better personal financial status.
Moreover, Nike’s (not only Nike’s but also some other US-based companies) sales in China jumped 23% in the last quarter, so Chinese buyers like to spend money on high-end products. This is a good sign for Alibaba too.
With the rollout of 5G mobile e-commerce could increase even faster which is also important for Alibaba. So, Alibaba stock could deliver strong growth in the year ahead.
Alibaba improves algorithms to sell ads
Alibaba earns by selling ads companies and apps. It has adjusted and improved algorithms that help companies sell to buyers. For example, it improved desktop paid-search ranking algorithms, mobile monetization app, and desktop search personalization.
Alibaba’s New Retail business
Alibaba points to its brick-and-mortar stores as a “new retail” business. It unites those stores with the company’s direct sales. Alibaba’s core commerce revenue grew by 40% per year to $14.2 billion last quarter. Due to the acquisition of NetEase’s Kaola e-commerce, Alibaba’s “other” of the total revenue increased by 125% to $2.5 billion.
Also, Alibaba’s core commerce revenue only grew 29% annually which indicates that the company more dependent on the growth of its brick-and-mortar stores.
Since the first news of trade tariffs, more than a year ago, BABA had lower price growth of the stock. But its twelve-month revenue has increased by 70%, while earnings per share have increased by 135%, during the same period.
Completion of a “phase one” trade deal should give an immediate boost to Alibaba stock and grow the investors’ opinion of the company. Alibaba could reach a $10 billion annual revenue by the end of next year. This would improve Alibaba’s stock.
The company continues with a stable stock growth. Analysts foresee its revenue to rise 29% and earnings to rise 23% next year. That is the extraordinary growth rate.
However, investors should be conscious that Alibaba’s main business is depending on lower-margin operations, to push its top-line growth.
Alibaba’s core wholesale commerce business is sustaining the record strong growth. Alibaba’s revenue growth has been superior in comparison with JD.com, its main rival in China. So, Alibaba stock could deliver strong growth in 2020. Keep an eye on this stock.