It has been a week since Alibaba Group Holding Ltd (NYSE:BABA) announced its Q4 2017 earnings. By now, most BABA stock investors have digested its results which included 60% and 38% growth year-over-year for revenue and non-GAAP net income, respectively.
Investors didn’t like the fact that it missed analysts’ adjusted earnings-per-share estimate of $0.65 by 2 cents, sending Alibaba stock down more than 5% during trading May 18, only to turn positive by the end of the day.
In the five days of trading since BABA stock has treaded water.
My latest article in early May put Alibaba CEO Jack Ma in the same league as Jeff Bezos. Both men are great leaders and CEOs.
Alibaba, along with Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are my four must-own tech stocks.
There are so many positives about BABA stock that are talked about in the media, including the massive amount of free cash flow it generates — $10.0 billion non-GAAP in fiscal 2017 — that it’s hard to find anything new to discuss.
However, while not necessarily new ideas, these are three “hidden” reasons to love BABA stock.
Chinese Twitter
Alibaba owns 67.9 million shares of Weibo Corp (ADR) (NASDAQ:WB).
The company acquired its original 18% stake in the Chinese social media platform in April 2013 for $586 million with an option to up that ownership position to 30%; it did so when Weibo went public in April 2014, paying $434 million. Finally, last September, Alibaba upped its stake to 31.5% paying $135 million for a total investment of $1.2 billion.
Alibaba’s stake is worth $5.1 billion based on Weibo’s May 24 closing price of $75.35 for a nice 325% return in just four years.
Recently, InvestorPlace contributor Dana Blankenhorn suggested there could be a Chinese dot-com bubble building. He’s not wrong. However, I believe Jack Ma will engineer some maneuver to maximize shareholder value from its non-control investment.
He’s too smart not to protect the interests of BABA shareholders. I have to think a takeover of SINA Corp (NASDAQ:SINA), Weibo’s controlling shareholder is in the cards sooner rather than later.
Buy On Weakness
China video streaming platform Momo Inc (ADR) (NASDAQ:MOMO) announced first-quarter earnings May 23, and they were very strong. Analysts were expecting 32 cents per share, but Momo delivered EPS that were 38% higher at 44 cents. Revenues also beat estimates by 8%.
MOMO stock is up 238% over the past 12 months.
Care to guess how much of a profit Alibaba is sitting on?
Well, apparently it sold most of its shares in Momo in April for approximately a $1 billion profit or a return of 50 times its initial investment from 2012.
Originally, BABA wanted to acquire Momo, but those plans went south so Jack Ma waited for the right opportunity to unload and he did so in April.
The Only Disappointment
Only Groupon Inc (NASDAQ:GRPN) has been a dog for Alibaba.
In the fourth quarter of 2015, Alibaba bought 33 million shares in the daily deal website for somewhere between $2.54 and $4.05 per share. Splitting the difference, let’s say Ma paid $109 million or $3.30 per share for its 5.6% stake.
Based on Groupon’s May 24 closing price of $3.33 per share, Alibaba is probably broken even over the past year and a half owning the stock.
Bottom Line BABA Stock
Even when Jack Ma loses, he still seems to do okay. The amazing part is these three investments are a tiny piece of the Alibaba stock story.
Jim Cramer says it’s the only Chinese company he’d buy. That in itself speaks volumes.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
