To say 2015 was an interesting year for Alibaba Group Holding Ltd (BABA) would be an understatement. It’s been drama-packed to say the least. Slowing growth, an implosion of China’s stock market and rising concerns it was facilitating the sale of counterfeit goods all helped send Alibaba stock down as much as 44% at one point in the year.
Oh, the BABA stock price has recovered about half that setback in the meantime, fueled by news that it was acquiring Chinese streaming outfit Youku Tudou as well as news that it would be partnering up with Disney (DIS) to bring the iconic entertainment giant’s movies to China’s market.
Even so, barring a miracle within the next 24 hours, BABA shares will finish the year down 20%.
It begs the question: Is the glass half-full, or half-empty, for Alibaba stock in 2016?
Welcome to the Market, Jack Ma
As was noted, there was never a dull moment for owners of BABA stock in 2015. Although the company was riding the post-IPO euphoria train as 2014 came to a close, it didn’t take long for the honeymoon to end early this year.
The reasons for the pullback were numerous, although in retrospect, none of them were surprising.
One of those reasons is — like every other company that ever existed in the history of the world — the bigger Alibaba got, the more difficult it was to sustain a strong growth rate. And in a consumer market where knock-offs and counterfeit goods are the norm, it was inevitable that T-Mall would become a high-profile platform for the sale of such goods.
Yet, investors still acted surprised when those issues came full circle, and calling a spade a spade, CEO Jack Ma (who at times seemed befuddled investors weren’t happy) didn’t handle the meltdown with a great deal of grace.
It’s not an unusual first-year story for an IPO and an inexperienced CEO; Groupon (GRPN) and its original CEO Andrew Mason went through a similar boom-bust cycle, as did Facebook (FB) and Mark Zuckerberg. Both were loved, then hated, and are now at least appreciated.
As for what it means to current and would-be BABA owners …
Alibaba shares are apt to be on that same circuit, nearing the end of the bearish swing of the pendulum. That sets up what could be a less dramatic and moderately bullish 2016 … just because, after a year of building a fiscal and psychological baseline, investors finally have a good grip on what the company is and where it’s going.
3 Key Things to Watch in 2016
While 2016 is promising for Alibaba, it’s not just the budding recovery effort from BABA shares that makes the stock compelling. There’s plenty of fundamental support.
Three of these bullish pillars stand out:
1. Youku Tudou and the partnership with Disney: Although it remains to be seen just how much a counterfeit crackdown could crimp T-Mall spending, it’s not just a minor gaffe. Assuming the company is getting serious about barring counterfeit goods, that puts the growth onus on other units. Its best immediate bet to that end is the expansion of Youku Tudou and the penetration of its Disney streaming service.
The company could certainly do a lot worse. Youku Tudou — which is a hybrid of U.S. services like Netflix (NFLX) and Youtube — generated $291 million in revenue last quarter, and that number is growing fast. While the Disney deal is still in its infancy, observers like the fact that it’s partially a home-grown product. That’s important to Chinese consumers.
2. Alipay: For the same reason DisneyLife is already getting traction in China, Alibaba Group’s cash-transfer service Alipay is another local service provider that addresses the nuances of the Chinese market.
While it’s been around for over a year and has amassed over 350 million users since its inception, its critical mass (of growth) is likely to be in the near future. See, mobile phones in China are just now becoming the norm, and it’s happening at an accelerating pace. Alibaba is capturing online-payment market share almost as quickly as Chinese consumers are buying mobile phones … many of them for the first time ever.
On that note…
3. Mobile: While Alipay is one way Alibaba is bringing new sources of mobile-driven revenue into the mix, it’s not the only way. Jack Ma has tapped into the entire gambit of mobile revenue opportunities.
It wasn’t something all investors had confidence would happen But, when the company finally turned up the heat on its mobile advertising efforts for this year’s Singles Day, it made a measurable difference in the top and bottom lines. For perspective, only 43% of last year’s Singles Day sales were made through mobile devices. With this year’s rate reaching 69%, Alibaba has convincingly confirmed it’s a fierce new competitor in the crucial mobile market.
Bottom Line for BABA Stock
The point is, a lot of things are coming together at the right time in the right way for BABA stock. They’re not just internal forces, either. China’s consumer market is firming up again, and going increasingly mobile. All of this plays right into the hand Jack Ma is currently holding.
In other words, Alibaba is finally a company and not just an idea, and its fundamentals don’t look half bad.
A move above $100 for Alibaba stock in 2016 is within reach, while a move to $120 isn’t out of the question.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- 2016 Outlook: Apple Inc. (AAPL)
- 2016 Outlook: Walt Disney Co (DIS)
- 2016 Outlook: Alphabet Inc (GOOG, GOOGL)