I’ve been a fan of Alibaba Group Holding Ltd (BABA) since it first went public, but so far, the stock has mostly struggled. The good news about BABA stock is that it is the first play on China’s emerging consumer economy that investors really have. The bad news? Ditto.
The new consumer economy in China hasn’t exactly come to fruition quite yet. There’s less talk of a hard landing, but the recent stabilization of the economy came from the exact kind of stimulus the country was trying to move away from.
The Financial Times noted that property stimulus has been “the main factor driving the recent rebound in investment,” and that “stimulus for property risks [is] worsening the economy’s reliance on fixed-asset investment, hindering a transition to consumption- and services-led growth pursued by policymakers.”
Meanwhile, Morgan Stanley says the overall downtrend is expected to resume — especially as the country continues to rack up more and more debt.
With that in mind, it might seem promising that Alibaba just made its biggest push out of Asia yet. BABA just announced plans to launch its Alipay payment app (run by affiliate Ant Financial) in Europe.
In a nutshell, the app is adding partnerships to let Chinese tourists pay for things abroad. It also has a Yelp Inc (YELP) aspect, including notifications about dining, shopping and sightseeing suggestions and the ability to post reviews.
Can European Expansion Push BABA Stock Upward?
Chinese tourist spending has been growing even as the economy has suffered. Last year, for example, Chinese tourists spent $215 billion abroad, good for a 53% year-over-year increase. And considering Alipay is one of China’s biggest payment services and already heavily ingrained in the daily life of Chinese consumers, there’s a good chance it can capture a slice of the piece.
Alipay already has 450 million active users in China, and estimates suggest it owns more than 80% of the mobile payment market share.
But it’s going to be a slow grind.
The push into Europe isn’t a huge focus and usage will only be available in the U.K., Germany, France and Italy starting this summer. Expanding that footprint will take time and additional partnerships.
Beyond that, even a slice of the tourist pie likely won’t be enough to offset the sentiment and headwinds that have been weighing on Alibaba stock since it hit the public markets.
I still believe in the prospects of China and the Chinese consumer long-term and I love Alibaba’s e-commerce dominance in that arena and its dominance into payments. But we need the Chinese economy to truly stabilize and be able to stand on its own two feet before we can better assess and assure that a rebound is in store.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
