Why Alibaba Group Holding Ltd (BABA) Stock Will Go MUCH Further

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Alibaba stock - Why Alibaba Group Holding Ltd (BABA) Stock Will Go MUCH Further

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Looks like I was right about Alibaba Group Holding Ltd (NYSE:BABA) stock being a better investment than Amazon.com, Inc (NASDAQ:AMZN) stock. Although both have performed very well since the end of March when my column touting BABA stock over AMZN was published, the stock has risen significantly more since then. Given the strength of Chinese e-commerce and the potential strong growth engines, Alibaba stock still has a great deal of upside left, and investors should buy the shares at current levels.

Why Alibaba Group Holding Ltd (BABA) Stock Will Go MUCH Further

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Of course, Alibaba stock got a huge boost June 8 after the e-commerce giant announced that it expects its revenue to surge 45%-49% during fiscal 2018. According to CNBC, the news literally caused investors who were present for the announcement to emit “gasps of wow.”

BABA Stock: It’s Not So Shocking

But they really shouldn’t have been so surprised, since Chinese e-commerce has actually been on fire for some time. According to a recently published report by iResearch, B2C e-commerce in China jumped 32.4% yea-over-year in 2016, Fung Business Intelligence reported last month. Moreover, the total transaction value of the country’s mobile e-commerce rose an incredible 58.3% in 2016. And 2016 was a rather weak year for the Chinese economy.

Now that the country’s economy has improved, nobody should be startled that Alibaba’s core e-commerce business is really taking off, leading to yesterday’s upbeat forecast. Moreover, the company’s revenue surged 60% last quarter, versus the same period a year earlier, representing the largest such increase since its IPO in 2014.

BABA’s core business could reach really staggering heights, if the forecasts of CEO Jack Ma prove to be accurate. Newsweek quoted him as saying that online spending will be greater than the total of the rest of the world by the end of 2018. According to the tech magnate, 1 billion packages will be delivered each day in China, up from just under 100 million now.

In a country with 730 million internet users and an economy expanding rapidly, Ma’s projections actually sound pretty incredible and totally realistic at the same time.

Huge Growth Engines for Alibaba Stock

Meanwhile, the company still has several other huge potential growth engines. Its Ant Financial online payment services unit is rapidly gaining popularity in China. According to Fung Business Intelligence, over 45 million Chinese millennials have registered with Ant, and “40% of this group of users use “Ant Check Later” credit payment as the default payment method in their Alipay account.” (Alipay, China’s leading online payment system, is operated by Ant).

An active millennial user base of over 16 million, which looks poised to grow rather quickly, is a pretty good foothold in the demographic. Furthermore, Ant recently gained a beachhead in the U.S. mobile payments market, as it signed a deal with First Data Corp (NYSE:FDC) that will allow the e-commerce giant to partner with over 4 million retailers here.

BABA has also entered another rapidly growing, huge e-commerce market recently, as it bought a 40% stake in Indian online payment company Paytm, which has over 200 million users, for $177 million. By 2021, the Indian e-commerce market is expected to be worth about $75 billion.

Additionally, Alibaba’s cloud business continues to grow rapidly, as the unit’s revenue more than doubled year-over-year last quarter to $314 million. And Alibaba’s revenue from digital media and entertainment (it controls large stakes in several such companies) soared 234% to $571 million. As Alibaba’s businesses continue  to generate stratospheric growth, their impact on the company’s top and bottom lines will expand.

With a core business that’s expanding at huge rates and new ventures whose growth rates are sky high, BABA and Alibaba stock can continue to deliver amazing results going forward.

As of this writing, Larry Ramer owned shares in Amazon and Alibaba.   

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/alibaba-group-holding-ltd-baba-stock-go-much-further/.

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