India: The Perfect Growth Engine for Alibaba (BABA) Stock

Alibaba Group Holding Ltd (NYSE:BABA), not content with the $130 billion in business it facilitated in 2014, is looking to buy into India, according to Reuters. The e-commerce giant is in preliminary talks to invest in Snapdeal.com, an Indian e-commerce marketplace.

India: The Perfect Growth Engine for Alibaba (BABA) StockIf Alibaba can do half as well in India as it’s done in China, BABA stock is a screaming buy, especially after its recent pullback. Alibaba stock, after an over-subscribed record-setting IPO in September, peaked at $120 a share in November, 76% higher than its $68 offer price.

After a 30% pullback, BABA is poised to roar once again, and investors should buy before the market sees the error in its ways.

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India: A $100 Billion Opportunity

Morgan Stanley believes the Indian e-commerce market is in its infancy, with explosive growth potential ahead. The firm expects the opportunity to grow from $3 billion to $100 billion in 2020. Not surprisingly, BABA wants a slice of that pie.

An Alibaba investment in Snapdeal would be the company’s first direct investment in India. It isn’t the only e-commerce player to notice Snapdeal: eBay Inc (NASDAQ:EBAY) has also thrown hundreds of millions into the company.

Sure, it’s too bad BABA didn’t get in on the ground floor, but hindsight is 20/20 and it’s better to hop aboard a little later than invest early and lose your shirt. There’s an old saying, “Pioneers get slaughtered, and the settlers prosper,” and Alibaba is a settler.

There’s no indication that Snapdeal’s valuation won’t continue to soar, either. Twice in 15 months, EBAY considered buying a controlling stake in the company. The first time Snapdeal was valued at $500 million, the second time, $1 billion. Fifteen months after the first valuation — when Softbank Corp (USA) (OTCMKTS:SFTBF) plowed $627 million into the company in October — it was worth $2 billion.

There’s no word on how BABA’s investment would value Snapdeal, but it’s unlikely to be less than $2 billion.

With China’s growth rate steadily ebbing, it makes sense for BABA to look to other large markets for growth, so why not establish itself in India? A population of 1.2 billion and an estimated 7.2% growth rate this fiscal year — a sharp bullish revision from the IMF‘s previous 5.6% estimate — can’t be wrong.

You don’t earn a $200 billion valuation like BABA stock has by sitting idly as opportunities go whizzing by. You gotta move fast. And with Amazon.com, Inc. (NASDAQ:AMZN) making a $2 billion commitment to its own operations in India last year, Alibaba would be remiss to pass up an opportunity for exposure there.

We know this much: Alibaba’s founder, Jack Ma, is doing everything he can to ramp up growth at his company since the BABA IPO last year. Just last month, Ma opined on his blog about what he considered to be lackluster business results, breaking the news to employees that they shouldn’t be expecting any annual cash bonuses, a Chinese tradition.

There are only so many $100 billion markets in the making, and those are the kind of markets that BABA needs to exploit at its incredible scale.

I’m happy to see Alibaba contemplating a move into just such an opportunity, and, in a few years, BABA stock investors will be, too.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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