Alibaba Group: review and forecasts
Alibaba enjoys a good reputation among investors. Many believe that buying shares in a company is a reliable and long-term investment in China's fast-growing technology sector. The corporation owns the country's largest e-commerce platform and cloud infrastructure in China. Works in advertising, media, software, and games. At the same time, the issuer constantly doubles its revenue and shows an increase in profit.
For all its advantages, the issuer has faced a number of internal and external difficulties over the past six months and has lost almost a fifth of its market value. Today we will look at the reasons for these losses and find out whether the security of this company has a future.
Alibaba Group Holding Limited is a leader in the online sales market. The company has been around for more than 20 years, and during that time it has created its own ecosystem that is used as a platform for third parties. At the same time, the issuer does not sell directly, does not compete with sellers using its platform, and does not have a warehouse.
Alibaba has another e-commerce platform, Taobao Marketplace, and Tmall, a platform for brand owners and retailers. We all know about websites Alibaba.com and AliExpress.
The Trading Corporation has provided its clients with the infrastructure they need to do business, which allows traders to trade with their clients and business partners over the Internet.
Alibaba also has a cloud services business, grocery hypermarkets, a film company and a logistics network, as well as stakes in Ant Group, a financial technology company.
What Alibaba went through
So, what problems has this market had to face in the last six months? – There were two of them. One came from the United States, the other from the Chinese authorities. But, let's start in order.
As you know, former US President Donald Trump announced a "crusade" against China. The White House attacked not only the Chinese economy, but also private capital. And as you can imagine, Alibaba was one of the first on this list.
President Trump has resigned, but his case is still alive. In March 2021, it was announced that Alibaba shares could be removed from the US list. In March, the SEC began implementing a law passed by Trump that requires foreign companies trading on the stock market to conduct audits of US regulators.
The conflict is still raging, but is it worth worrying about the original idea of Jack Ma? – We don't think so. Yes, the White House will put pressure on Beijing and major Chinese companies, but it is unlikely to end in something bad.
First, Wall Street is unlikely to want to lose Chinese companies that want to trade on US platforms.
In addition, many asset management companies, such as Blackrock, Vanguard, and T. Rowe Price, are Alibaba's largest shareholders. And they are unlikely to be thrilled with the chaos that could result from the company's $ 600 billion ban. Most likely, they have already started actively lobbying for this issue and will do everything to prevent Alibaba from being blacklisted.
The second problem faced by the Chinese business platform was the Chinese government. Everyone knows that human rights and freedom of speech are violated in China. Unfortunately, Jack Ma had to see for himself. Admittedly, he himself angered Beijing by criticizing the Chinese regulator. Without thinking twice, regulators in China fought back. First, they canceled the IPO of Ant Group, an Alibaba subsidiary. They then began checking Alibaba's activities for monopolization, and then imposed a multibillion-dollar fine. Does Beijing want to destroy Jack Ma? Again, we don't think so. It is unlikely that Beijing will want to appear before the world community as a "killer" of such business. This is not profitable either from a political or economic point of view. Beijing wants to show that such giants should know their place. In China, neither a company nor an ordinary person can be above the Communist Party. In our opinion, they succeeded. They could have arrested Jack Ma long ago and taken control of all of Alibaba's assets, but both Ma and the company are still with us. So we won't be surprised if the IPO of Alibaba's Ant subsidiary returns to the agenda before the end of 2021.
What's with Alibaba's business now?
"What doesn't kill us makes us stronger" – this statement can be attributed to the Chinese company. She passed all the tests and not only did not suffer, but was able to continue to thrive. So, in the last quarter, the issuer reported an increase in revenue by 30%, and net profit amounted to $28.8 billion.
This corporation can be compared to the American Amazon. First, they work in the field of e-commerce and cloud services. In recent years, Amazon's revenue has grown by about 206%, and its shares have risen by 424%. The same figures for Alibaba rose by about 200% and 425%, respectively. On the other hand, Alibaba Group shares are about 200% cheaper than Amazon.
There is always a lot of negativity around companies like Alibaba. At the same time, you need to make sure how the core business feels in this case. Alibaba remains the e-commerce leader in the largest emerging economies and in the largest technology markets of the 21st century. If you buy the issuer's shares today, you will be satisfied in five years. In fact, for long-term investors, any downturn is an advantage, especially when the company's business is booming.
Alibaba is currently trading at about $225. The asset is still under pressure, but it seems that buyers have managed to stop sellers. Now they need new drivers to get the stock back on track. This catalyst may well be the next report.
However, there is no need to hurry. The correction may be delayed, so we advise you to wait for the close above the level of $235-240 and buy the asset in the direction of $280.