Alibaba Group Holding Ltd (NYSE:BABA) CEO Jack Ma’s wealth increased $4.1 billion in the first four months of 2017 to $37.5 billion putting him 15th on the Bloomberg Billionaires Index; thanks to BABA stock, Ma is a very wealthy man.
Not quite as rich as Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos, though, who finished April as the world’s third-wealthiest person at $79.6 billion. Only Mark Zuckerberg has seen a bigger increase so far in 2017.
Many think it’s only a matter of time before Bezos pushes Bill Gates aside. Hey, I consider Amazon one of the four buy-and-hold tech stocks along with BABA, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB).
Forget FANG. Now, it’s all about FAAA with BABA stock leading the charge.
Seriously, though. Could Jack Ma become the wealthiest person on the planet? I think he could, but a lot of things have to go right including building a global business, not just a regional one.
I think Jack Ma and his team could vault Alphabet stock to the very top of the market cap charts.
Here’s why.
Alibaba Stock: Walking on a Cloud
Amazon grew its cloud business 43% to $3.7 billion in Q1 2017. Amazon Web Services (AWS) has operating margins almost 25%; it makes more in a quarter from the cloud than Google does in a year.
The good news for Alibaba, which is still building its cloud business and currently doesn’t yet make money from it, is that Gartner projects the worldwide market for public cloud services to grow to $383.4 billion by 2020. That’s $174 billion in additional cloud revenue that doesn’t exist today.
Sure, Amazon is going to capture a big chunk of that, but BABA certainly has a chance to grab some for itself. Recently, Barron’s ran a piece by MKM Partners that put a future value (2022) of $70 billion on Alibaba’s cloud business.
“We think Alibaba already has the largest pool of computing resources in Asia,” wrote MKM Partners senior analyst Rob Sanderson. “The company’s marketplace businesses not only serve about 500 million users, [but] they are also provisioned for the gigantic spike that occurs on Singles’ Day.”
That’s just in China.
If it were able to grab a piece of the public cloud market share outside China, the $70 billion valuation would run higher.
In March, I highlighted some of the reasons why I think BABA stock will benefit from the cloud. Jack Ma and company have set their sights on overtaking Amazon in this increasingly competitive marketplace and while its run rate is barely $1 billion, one-fourteenth the size of Amazon, it’s coming on.
If, and it’s a big if, Alibaba were to catch Amazon on a global basis, you can bet BABA stock will not be trading at $115.
Omnichannel Wins
The word omnichannel is a cliche these days, but if you agree with the recent statements of Simon Property Group Inc (NYSE:SPG) CEO David Simon about the retail industry, I think you get a better idea why Jack Ma is buying brick-and-mortar retailers.
Simon believes that many retailers overspent on e-commerce to the detriment of their physical stores, but now they’ve realized the error of their ways recommitting to a smaller, more vibrant brick-and-mortar footprint. He went on to stress that pure-play e-commerce businesses are not going to survive long-term without some brick-and-mortar presence to enhance the customer experience.
Jack Ma and Jeff Bezos both know this to be true. Why else would both Alibaba and Amazon be investing in physical store locations?
“Alibaba and Amazon have the same two goals. Two billion customers and a reinvention of the retail model and experience,” says Michael Zakkour of Tompkins International. “Much in the same way department stores, chain stores, malls, Big Boxes and ecommerce have reinvented retail in the past, Alibaba is using technology, big data and imagination to connect offline and online so that there is only a unichannel retail experience.”
The successful integration of big data with big retail equals a big win for Alibaba.
Bottom Line on BABA Stock
I’m a big fan of Jeff Bezos. His visionary leadership makes him easily one of the top CEOs of the last 100 years. I’m starting to feel the same about Jack Ma.
“Fifteen years ago I gave speeches 200 or 300 times reminding everyone the Internet will impact all industries, but people didn’t listen because I was a nobody,” Ma said recently talking about the pain the internet is causing to industries and economies around the world.
I just love the man’s honesty. If anybody can become the next Jeff Bezos, Jack Ma is it.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
