Alibaba Stock Is a Buy, And Not Just Because Singles Day Was a “Success” (BABA)

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Congratulations are in order for Alibaba Group Holding (BABA). The Chinese company’s Singles Day sales event was a smashing success (again), trouncing last year’s Singles Day sales numbers.

Alibaba Stock is a Buy, and Not Just Because Singles Day Was a "Success"In fact, the $14.3 billion worth of sales Alibaba drove through its e-commerce site T-Mall on Wednesday stands as a global sales record for any one company in just one day. Indeed, a number of large companies don’t do $14 billion worth of business in a year.

One would think such success would have driven the value of Alibaba stock through the roof, so to speak.

One would be wrong, however.

BABA fell nearly 3% on Wednesday despite reports of strong sales. And Alibaba stock was still struggling before the opening bell on Thursday now that more dust has settled since the mania.

The lackluster response from BABA in the shadow of superb sales success raises several questions. The biggest of these: If $14.3 billion worth of e-commerce can’t get Alibaba stock moving, what can?

A Stellar Singles Day

Just to avoid confusion, Alibaba’s T-Mall didn’t generate $14.3 billion worth of company revenue on Wednesday during the annual online shopping extravaganza. It served as the middleman for $14.3 billion worth of merchandise sales done by more than 40,000 vendors using the T-Mall e-commerce platform.

Still, inasmuch as Alibaba takes a small cut of each transaction completed through T-Mall, a sharp increase in sales should translate into bigger top and bottom lines when the current quarter’s results are posted early next year.

And growth was plentiful on Singles Day. This year’s gross merchandise volume of $14.3 billion left last year’s $9.3 billion in the dust.

Equally impressive was the fact that 69% of those purchases were done using a mobile device.

Not unlike United States consumers, Chinese consumers are increasingly falling in love with their smartphones and tablets, choosing them over desktop and laptop computers.

Owners of Alibaba stock were rightfully concerned a year or so ago when it appeared Alibaba was failing to win enough of the mobile shopping crowd. For perspective, only 43% of last year’s Singles Day sales were made through mobile devices. So, with this year’s rate of 69% — thanks to a concerted mobile effort put into motion early this year — Alibaba has convincingly confirmed it’s a fierce competitor in the crucial mobile market.

It’s a big deal in terms of future growth. As Standard & Poor’s put it, “We believe the growing mobile penetration rates will further attract traffic to Alibaba’s online marketplace platform, and enhance user experience and stickiness when making purchases.”

So Why Is BABA Not Rallying?

What should have superficially been bullish for Alibaba stock clearly hasn’t been. What gives? The answers are more subjective than objective, but few dispute the explanations.

Broadly speaking, this is a case of “buy the rumor, sell the news.”

Much like last year, BABA shares rallied right up until the sales event began, as traders sought to capitalize on the hype of the event, and hoped to sell into the strength that was supposed to unfurl at the peak of the frenzy.

It’s a strategy too many people have employed though; few investors actually waited for the Singles Day numbers to be released to make a buying decision on BABA. [In fact, it appears nobody did so.]

In a similar vein, while the sales total was impressive, investors are increasingly skeptical that a big top line will actually boost the bottom line; some observers believe Alibaba and its merchants sacrificed revenue and profits, all in the name of being able to create a tout-worthy growth figure on Wednesday.

Forrester Research analyst Xiaofeng Wang is one of those skeptical parties. Noting that T-Mall topped last year’s total sales of $9.3 billion just by lunchtime yesterday, he concluded that vendors were offering increasingly generous offers this year. To that end, one can’t help but wonder if the pressure Alibaba was rumored to put on its vendors artificially beefed up this year’s sales volume, overstating the true strength of China’s consumers at this time.

Simultaneously, vendors may have put an amazing amount of pressure on themselves, sacrificing margins in the name of market share. It was a complaint last year, and the mania was weaker then.

Impressed investors should also bear in mind that many Chinese consumers put off making purchases in front of this year’s Singles Day sales, and will likely hold off on making more purchases for at least the next few days.

Bottom Line for Alibaba Stock

Realistically, Alibaba probably didn’t make an earth-shattering amount of money on Wednesday. It’s likely that its vendors didn’t make any money on Wednesday. That was never the point, however. The point was to garner a whole slew of new customers — mobile customers in particular — and to get the financial media talking about BABA the way it has done.

In that light, it was a successful Singles Day for Alibaba, and though the event itself was likely a loss-leader, the event should indirectly spur another respectable earnings beat in late January. That estimated quarterly profit for the current quarter is $5.66 per share, up from the $5.03 it earned in the same quarter a year earlier.

Whether investors love Alibaba or hate it, it can’t be denied that it remains a growth machine.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/alibaba-stock-buy-not-just-singles-day-success/.

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