Fellow Apes,
Alibaba has been getting rocked lately due to regulation crackdowns on tech firms within China. Furthermore, Alibaba founder, Jack Ma, criticized the Chinese government near the end of 2020, and must have forgotten he lived in a Communist country because President Xi did not waste any time putting him in his place and causing the stock to lose ground.
Fundamentals:
- Fiscal Year 2021 Q3 Revenue came in at $33.8B which was a 37% increase year-over-year
- Adjusted EBITDA up 22% year-over-year
- Income from operations came in at $7.5B which was a 24% increase year-over-year
- Non-GAAP Net Income came in at $9B which was a 27% increase year-over-year
- Non-GAAP Diluted EPS came is at $3.38 which was a 21% increase year-over-year
- Annual active consumers on China retail marketplaces reached 779 million for the twelve months period ended December 31, 2020, an increase of 22 million from the twelve months period ended September 30, 2020.
Source: https://www.alibabagroup.com/en/news/press_pdf/p210202.pdf
E-Commerce: Alibaba has growing competition from companies such as JD and Pinduoduo in the e-commerce space, but still holds a dominate position with 56% of the current market share, and can continue that momentum given that China expects retail sales to make up 52% of e-commerce sales in 2021, which is up from 44.8% a year prior, and also expects the trend to tick upward through 2024. The most recent earnings release showed a 38% increase in revenue from their core e-commerce space.
Source: https://www.furninfo.com/Furniture%20Industry%20News/11926#:~:text=All%20told%2C%20Alibaba%2C%20JD.,but%20also%20to%20smaller%20challengers
Source: https://www.emarketer.com/content/global-historic-first-ecommerce-china-will-account-more-than-50-of-retail-sales
Cloud Computing Services:
- Revenue for the company's cloud computing business grew 50% year over year to $2.47 billion.
- Alibaba Cloud achieved positive adjusted EBITA during the quarter
- With Alibaba's cloud computing business beginning to take off, there is still plenty of room to add to its overall source of revenue considering that it currently makes up just 7% of their revenue.
- Furthermore, the US cloud market is currently about 8 times larger than China's, giving them much more room for growth and more opportunity for Alibaba to capitalize.
Source: https://www.alibabagroup.com/en/news/press_pdf/p210202.pdf
Source: https://finance.yahoo.com/news/alibaba-cloud-turns-profitable-11-081833360.html
Company outlook and why I am bullish on the stock:
- Alibaba stock is currently down roughly 30% from is all time high
- BABA is expected to grow revenues by 39% this year
- BABA is expected to grow revenues by 31% in 2022
- BABA is expected to achieve EPS of $10.14 in Fiscal 2021
- BABA is expected to achieve EPS of $11.61 in Fiscal 2022
*** with the stock currently sitting at $223.31, it is trading just 22 times fiscal 2021 EPS and 19 times fiscal 2022 EPS, and with the expected revenue growth, this seems like a cheap stock at the moment. Also, with an EPS last year of $8.08 and an estimate this year of $10.14, that shows an expectation of 25% YOY EPS growth, again, making the stock look cheap.
Source: https://finance.yahoo.com/quote/BABA/analysis?p=BABA
Risks and potential reasons not to buy the stock:
- BABA was just fined $2.8B for anti-trust bullshit
- crackdowns from Chinese gov't can hinder their growth potential and market share dominance
- Bill Gates investment team dropped their position in BABA
- There have been talks that they may be forced to divest some of their non-core business segments
Source: https://finance.yahoo.com/news/china-fines-alibaba-group-2-020455597.html
Source: https://www.entrepreneur.com/article/365837#:~:text=The%20Bill%20and%20Melinda%20Gates%20Foundation%20sold%20all%20the%20shares,a%20total%20of%20%24%20128.56%20million.
TL;DR:
BABA has been under a lot of pressure lately due to regulations and crackdowns on tech firms by the Chinese gov't causing the stock to currently trade 30% off its all time high. They just had to pay a $2.8B fine. Aside from this, the company is expected to grow revenues by 39% this year and 31% next year. It is currently trading 22 times Fiscal 2021 EPS and 19 times Fiscal 2022 EPS which makes the stock attractive given the company's expected revenue growth. With how cheap the stock is, and how well the company is expected to grow, the stock can be viewed as both a value and growth stock. With the $2.8B fine out of the way, I believe the selling of BABA is nearing an end, and now set to moon. My boy Charlie Munger agrees with me (he just bought BABA to make for 19% of his equity portfolio).
Source: https://finance.yahoo.com/news/charlie-mungers-daily-journal-buys-162550289.html