If you were going to own just one Chinese stock, it would have to be Alibaba Group Holdings Ltd (NYSE:BABA). Heck, if you were going own any tech stock, from any country, it might just have to be BABA. Founder Jack Ma has managed to take the best of the technology sector — Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), etc. — and roll them it into just one amazing firm. That combination of great tech businesses has continued to pay benefits for Alibaba stock and its bottom line.
And Jack Ma isn’t done yet.
Alibaba continues to expand beyond the reach of its core ecommerce market in China. Through numerous acquisitions, Ma and BABA have positioned themselves in key new markets as well as new industries. In the end, these various buyouts will allow the Chinese tech juggernaut to be “all things, to all people.” You’re witnessing the birth of a real shining star in the sector.
For investors, it could finally mean that Alibaba stock will get the valuation it deserves.
BABA Stock Buys Big
The beauty of Alibaba’s main business model is that it throws off a decent amount of cash. Unlike Amazon — which mostly sells products from its own warehouses and holds the inventory — BABA simply acts as a middleman for other retailers. This allows it have higher margins than you would expect. And what it has been doing with that cash has been particularly awesome.
Since 2013, BABA has undergone more than 60 acquisitions or direct investments into various companies. It has announced more than 14 deals in the first half of 2016, alone.
What’s striking is that it’s not just focusing on retail or internet firms. BABA has done a fair bit of shopping in other businesses. These deals have only strengthened Alibaba’s overall ecosystem and reinforced the idea that Ma is putting together the GOOG-AMZN-FB- Oracle Corporation (NASDAQ:ORCL) of Asia.
For example, at the end of 2015, BABA purchased a stake in Chinese smart-phone and tablet maker Meizu. The idea behind the purchase was to get Alibaba’s smartphone/tablet/smart t.v. operating system (YunOS) into the hands of Chinese citizens. While Meizu doesn’t necessarily make the “best” or most high-end phones/tablets, it doesn’t have to. Amazon’s Fire and Kindle tablets aren’t exactly high-end either, but they manage to deliver plenty of additional revenues through shopping click-throughs and deliverable content via its Prime streaming service.
And that’s exactly what Alibaba stock wants to do.
A cool $5 billion for video-streaming company Youku Tudou allows Alibaba to create its own original content — just like Amazon Prime, YouTube and even Netflix, Inc. (NASDAQ:NFLX). Recent partnerships with DreamWorks and Amblin Partners will allow Alibaba the exclusive rights to show various movie franchises in China as well as develop new movies strictly for BABA. It even bough a newspaper — the South China Morning Post. All of which, you can now stream over your new Meizu tablet.
And Alibaba has even looked towards hobby businesses in the same manner than Google has. A buy-out of Didi Chuxing made Alibaba the Uber of China, while the firm has expanded its cloud computing and online storage markets. Which you can use to store all those original movies that you purchased on your new Meizu tablet.
See where we are going with this? And just like the big boys of tech here at home, BABA is going to data-mine the heck out of all this information that its customers generate for additional monetizing opportunities.
Alibaba Still Focusing On the Core Shopper
Clearly, Jack Ma and company are copying Silicon Valley. However, the real win in all of this is that BABA has the potential for expansion to a lot more customers.
Through its $1 billion buy of Lazada, Alibaba now has the ability to expand its model through Southeast Asia. Growing ecommerce play Lazada has a foothold in six Asian countries — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. It’s one of the fastest growing in terms of internet and ecommerce adoption.
More importantly, it gives Alibaba the potential to access another 620 million customers.
Also giving BABA stock access to more shoppers is its continued deals and rounds of investment in India’s various ecommerce and mobile shopping sites. Perhaps it’s only a matter of time until Alibaba pulls the trigger and buyouts one of the medium sized players fully.
Pushing Up Alibaba Stock
If you look at what Ma is doing, he is taking the “best” from America’s tech giants and putting all the pieces together. The difference is that the markets are potentially bigger. We’re looking at a really populous region in the world. And when you add China back into the equation, you really begin to see the scope of what Alibaba is trying to do. Imagine how successful a company you’d have if Netflix and Amazon had over a billion customers and somehow were merged together?
In essence that’s what Ma and BABA are looking to do.
In the end, the long term for Alibaba stock will be determined by the strength of these acquisitions. However, investors continue to focus on Trump’s anti-China message and recent accounting probes. That gives patient, long-term investors an inroad to buy shares of BABA stock on the cheap.
There are plenty of great things ahead of for Alibaba stock. Just look at the history of who it’s copying.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
