Alibaba Group Holding Ltd (NYSE:BABA), in my opinion, has always been a schizophrenic investment. It shines both hot and cold, and it’s difficult to discern its long-term trajectory. On the positive end of the spectrum, Alibaba stock is bolstered by the fact that it is China’s version of Amazon.com, Inc. (NASDAQ:AMZN). BABA is a mainstay in Chinese retail. CEO Yun “Jack” Ma leverages significant financial and political power, meeting then President-elect Donald Trump to discuss mutually beneficial business.
On the other hand, Alibaba stock as a profitable entity hasn’t always lived up to the dream. Sure, when BABA stock hit technical bottoms in September 2015 and February 2016, speculators gained tremendous returns.
But that reality is a double-edged sword. Essentially, what we’re saying is that your money is safe in the hands of Alibaba Group, but only when you’ve got a quick hand on the buy/sell button. Otherwise, you’re out of luck. As confirmation, BABA stock is only up 10.8% from the closing price of its first official trading day.
To be sure, 2017 is a radical shift in geopolitics and potentially, in macroeconomics. Whether they find these changes agreeable or not, Alibaba Group doesn’t seem fazed. To their credit, management is getting on with the situation at hand.
Bold Moves Bolster Alibaba Stock
First, there’s that little deal with the International Olympic Committee. Announced late last week at the World Economic Forum in Davos, BABA “will be the digital sponsor of the Olympics in three key areas: cloud services, e-commerce, and television,” according to Yahoo Finance. That’s an unbelievable platform for Alibaba stock. Now a member of “The Olympic Partners,” the company joins such names as The Coca-Cola Co (NYSE:KO), General Electric Company (NYSE:GE), McDonald’s Corporation (NYSE:MCD) and Visa Inc (NYSE:V).
It’s not just a matter of the Olympics brand name or the length of the deal, which will run through 2028. That, by the way, is enough to cover the next three winter and summer games each. Rather, it’s the fact that this move aligns with the long-reach vision of BABA. According to Timo Lumme, head of the IOC’s TV and marketing division, the deal will allow the Chinese giant to become a “globally accessible e-commerce platform.”
This is a critically important point for Alibaba stock. Jack Ma is at a point where dominance in China just won’t do. Asian companies are growing at a tremendous rate, and more of them have their eyes set on the U.S. markets. And while BABA stock kills it in domestic sales, international sales leave a lot to be desired. Thus, the Alibaba Group CEO discussed bringing the U.S. a million jobs with Donald Trump. In reality, it’s a savvy move to further integrate BABA’s retail channels beyond China.
Those that bought into Alibaba stock will certainly like what they’re seeing. However, the big question is whether it will work. For that, I’m not too sure.
BABA Stock Weighed Down by Nagging Questions
This isn’t just a cop-out statement. We really don’t know the details of the Olympics deal other than the time length of the contract. So until that data is released, it’s premature to determine how it would affect Alibaba stock. The concern, though, is that it can’t be cheap. Coincidentally, BABA is the first company to sign on through 2028. Maybe there’s a financial reason for that?
Then there’s an inconvenient fact about fake products. There are a number of reputable reports that suggest that Alibaba Group has benefited from the sale of knockoff products. Indeed, statements made by Jack Ma suggest that he truly doesn’t care about the controversy. Even the threat of legal penalties may only be symbolic.
As InvestorPlace feature writer James Brumley notes, counterfeiting “is almost a $400 billion industry in China, accounting for roughly 12% of its exports.” Needless to say, that’s serious money down the pipeline. Killing Chinese counterfeits is akin to killing Alibaba stock, hence Ma’s pushback.
For their part, the Chinese customers don’t care. They understand what they’re buying. Nobody is going into the BABA platform expecting to steal off Louis Vuitton bags for pennies on the dollar.
Unfortunately, what rolls in China doesn’t necessarily fly here in the good ol’ US of A. For all the uproar of “fake news,” imagine the outcry over fake products. You would be hitting Americans right in the wallet, and that’s precisely where you don’t hit them.
So, while I agree with the general sentiment that Alibaba Group is making some bold moves, the execution is lacking. They’ll have to make changes that don’t sit well with their corporate culture. Because of that, I’m not convinced on BABA stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
