Since taking my own advice in November and putting some shares of Alibaba Group Holding Ltd (NYSE:BABA) into my retirement account, I’ve gotten a 16% gain. On some days, like Mar. 23, BABA stock is the star of my portfolio.
While the key to understanding the stock, and the difference between it and Amazon.com, Inc. (NASDAQ:AMZN), remains its status as a global anti-poverty play, the two companies do have something important in common. They both fit a mosaic of seemingly disparate operations into a more profitable whole. That’s the art of business.
Most writers here at InvestorPlace want to talk about specific units. Lucas Hahn likes Ant Financial, whose Alipay aims to bring small producers into the global payment mainstream. Chris Fraley likes AliCloud, the company’s cloud computing unit, which frankly is just getting started. Co-founder Jack Ma might analogize all this to his favorite movie, Forrest Gump, but investors might be better off considering a play, Stephen Sondheim’s Sunday in the Park with George, now undergoing a Broadway revival.
Alibaba Stock: Finishing the Hat
First, China is more like 19th century Paris than 21th century New York, despite its pretensions. The entrepreneurial stew from which Alibaba arose is bubbling so fast the company must move quickly to stay ahead of hundreds of potential competitors.
You underestimate the power of that hunger at your peril. China is the world’s workshop and Alibaba stock, not Amazon, has the best access to it.
Ant Financial, which recently bid to buy Moneygram International Inc (NASDAQ:MGI), is a big part of that. Moneygram is the glue that can link bring Chinese producers into the money mainstream. Ant is unique in being both a bicycle — a way to get around for small producers — and a bridge into the global market or — for Chinese living here — back home. Whether it succeeds in buying Moneygram is less important for BABA stock than understanding that it will, in time, have something like it.
Don’t Forget the Currency
Alibaba stock’s strength would be more obvious save for the Chinese Yuan, whose value against the dollar has plummeted over the last two years. Were it not for the falling Yuan, BABA stock’s strength as an investment would be even more obvious. Even a slower fall will make Alibaba stock look better.
You can call BABA’s moves into South and Southeast Asia political, or a show of dominance, but they’re also efforts to give small businesses with even lower costs than China access to the developing world’s markets. This is where global growth lies for Alibaba stock. These markets are young and (finally) enjoying something like political stability. In short, there are other Chinas out there, and the depreciating Yuan is an easy way for these small businesses to latch-on, as opposed to using an appreciating dollar.
Bottom Line on BABA Stock
Alibaba next reports earnings on April 25, with analysts expecting it will earn 50 cents per share on revenues of $5.25 billion. That would come to revenues of about 37 billion Yuan, 40% higher than the same quarter a year ago, one reason InvestorPlace contributor Serge Berger now has a $120 per share price target on BABA stock.
Alibaba’s finances are not stretched. Its debt-to-assets ratio has been falling for years, its operating cash flow continues to accelerate upward, and if this were an American company you would buy it with no questions asked.
Don’t look at the headlines, like whether Euronet may trump Alibaba’s bid for Moneygram. Look instead at how all the parts fit into a whole, with the fastest-growing markets in the world at BABA’s command, and ask whether you can afford not to miss the next four years with it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in BABA and AMZN.
