Donald Trump hates Alibaba Group Holding Ltd. (NYSE:BABA). I consider that a recommendation.
Trump thinks China disrespects U.S. intellectual property. That’s just what the U.S. did during its first century, but he underestimates Alibaba, which represents both buyers and sellers. They are on the case.
More troubling are so-called fake reviews, which are like the fake news stories that elected Trump. Alibaba is already using its technology against them, while U.S. companies such as Facebook Inc (NASDAQ:FB) are just gearing up to their responsibility.
Alibaba, created as a business-to-business marketplace in 1999, is now the world’s largest merchant; it’s not just the largest e-commerce player, but a commerce enabler bigger than Wal-Mart Stores, Inc. (NYSE:WMT).
Alibaba is also a bet on the Chinese middle class, and it’s a bet you should take. China’s consumers are hard-working, hungry for value and conservative in the best possible way. That’s because they’re all first-generation middle class. They treasure their new status, they’re very supportive of stability, and since they’re Chinese they’re numerous. The Chinese middle class is due to become larger than America’s very soon, and even when China’s GDP equals that of the U.S., its people will still be just one-third as wealthy.
That also means they’ll still be hungry, the way your parents were when they first moved into the suburbs in the 1940s and early 50s. I would have bet on your parents.
2016 Consolidation
Alibaba spent this past year consolidating its financial position. U.S. merchants such as Amazon.com, Inc. (NASDAQ:AMZN) gave shareholders much better value. During the first nine months of the year, Alibaba delivered $8 per share in earnings, that’s $8 U.S. dollars. Cash flow averaged $8 billion per quarter — remember that most numbers are reported in Chinese Yuan. Debt rose 60%, but that was in line with assets, and in general debt levels are going down.
Alibaba never was interested in being the “Amazon.com” of China, which is the story Americans commonly told one another. Its ambitions are actually much broader.
The company is as more interested in self-driving cars than Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), it is a bigger factor in domestic media than Apple Inc. (NASDAQ:AAPL), and it may be better at getting artificial intelligence to market than International Business Machines Corp. (NYSE:IBM).
Founder Jack Ma doesn’t even want to talk about e-commerce. Computers, he says, are just one way to get things from here to there. He’s into eliminating all forms of market friction, and when Chinese consumers want to buy imports Alibaba is enabling it.
While U.S. media outlets are talking about Jack Ma’s tie-up with Steven Spielberg, the company is also investing in Chinese media companies. Don’t think of it as a movie studio or TV outlet; think of it as Netflix, Inc. (NASDAQ:NFLX). That is its new model.
Not Just China
You will start to see just how strong Alibaba is as it moves beyond its Chinese base with the acquisition of Singapore’s Lazada Group and the expansion of its Aliyun Cloud into Japan. These moves put it on a collision course with Amazon, which is expanding its own services into Southeast Asia through India, and which has been serving Japan with cloud since 2011.
Excited Alibaba employees buy in to Jack Ma’s Vision
All the best tech companies are led by founders who can describe what they do in a few short words. For Amazon, those words are e-commerce infrastructure; for Apple, it’s user experience; for Microsoft, application software; for Alibaba, it’s frictionless commerce.
Alibaba remains true to its original 1999 mission of taking costs out of distribution channels and out of the negotiation and sales process so people and businesses can trade across the globe the way they could across a counter.
That’s a big job, and Alibaba employees are hard-working, dedicated and have a track record of getting it done. MKM Partners says BABA stock should be worth $130 per share by the end of 2017. Too many American analysts still call the country “Communist China,” as though Alexander Hamilton or Abraham Lincoln never lifted a finger to aid business, and they’re greatly underestimating this company.
The companies you want to be in, and the economies you want to be in, are those which are underestimated.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA, GOOGL, AAPL, AMZN and FB.
