Were We All Wrong About AliBaba?
It has been one of the most difficult years to date for long-term investors in AliBaba (NYSE:BABA), as the stock has fallen by 46% year to date and 53% over the past 52-weeks. I have written about AliBaba before, and as the stock price continued to fall, I preached patience but also the potential for a generational buying opportunity. Up until 2020, AliBaba had been one of the most consistent stocks on the market and the company looked to be heading towards a $1 trillion market cap. In retrospect, I was wrong, but here’s why not all is lost for investors who are eyeing an entry point for AliBaba today.
AliBaba Has a Plan
At its recent Investor Event, AliBaba outlined a detailed plan to regain positive sentiment and the trust of its shareholders. At the core of its plan, AliBaba is looking to grow the premium 88VIP subscription service for its eCommerce business. Think of this as Amazon Prime for the Chinese market. The company is also looking to integrate better artificial intelligence into its platform to allow for more targeted ads, which make up a bulk of the company’s revenues. The pandemic has taught us that eCommerce is the lifeblood of our economy in many ways, and as the world continues to trend towards a global digital marketplace, AliBaba should be able to gain.
Other markets that AliBaba is looking to expand are its discount Taobao site, its restaurant and food delivery segments, and of course, its cloud computing branch. Like other mega-cap tech companies like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL), AliBaba is also fast tracking its profitability in cloud services. The segment is already profitable on an adjusted EBITDA basis, and is expanding into a market leader in Asia. When you factor all of these things in, it is surprising how much growth a company the size of AliBaba has on the horizon.
AliBaba Stock Outlook for 2022
All of this sounds wonderful, but the elephant in the room is the Chinese government. Earlier this week, the Anti-Monopoly Bureau stated that it will be looking to impose further punishments for tech companies that are using anti-competitive practices. That obviously doesn’t sit well for investors, as AliBaba has been targeted before during these regulatory crackdowns. I don’t recommend investing in Alibaba until we receive some more clarity about another round of potential crackdowns.
With that being said, I think the actual business of AliBaba is in fine shape. Some complained that the presentation did not reveal enough new information, but a company the size of AliBaba does not always need a ton of innovation. Investors should want AliBaba to continue to grow from its strengths and reinforce the core of the business. The cloud computing business is exciting and if it can be anywhere near as profitable as Amazon Web Services or Microsoft’s (NASDAQ:MSFT) Azure, then AliBaba is in good shape. AliBaba’s stock is long past oversold territory, and a looming threat of ADR delisting also hangs over the company. I was wrong about AliBaba before, but the thesis of my argument is still intact. AliBaba’s business and stock are heading in opposite directions, but one day soon we will find a capitulation. When that happens, is anyone’s guess.