Speculation is making the rounds about the fate of Alibaba Group Holding Ltd (NYSE:BABA), and the election of Donald Trump could be the harbinger of Jack Ma’s fall from grace.
Could BABA stock really be headed for e-commerce oblivion simply because a single man, albeit a powerful one, is opposed to China’s currency manipulation?
“If China hadn’t been ‘manipulating’ its currency, it would have been much weaker,” said ex-China specialist David Loevinger. When Trump takes office, he may “realize finding ways to get China to open up without strengthening the hardliners and hurting ourselves is a lot harder.”
Clearly, it’s not as easy as Trump thinks it will be to carry out.
The BABA Stock Trump Card
More specifically, for Alibaba to be hurt by Trump’s threats, it would have to generate far more revenue from the U.S. than it currently does. In the second quarter ended Sept. 30, Alibaba generated just 10% of the $3.3 billion in revenue from its core commerce segment outside China and not all of the $330 million was from the U.S.
Now, it’s true that BABA stock has been driven higher in large part because of the potential it has to take down Amazon.com, Inc. (NASDAQ:AMZN) outside of China. A trade war would certainly make that more difficult, but not impossible.
After all, while the U.S. could be a large market for Alibaba in the future, it still has a potential 5.7 billion people across the globe that it can go after, excluding China and America. Very few of them will adopt protectionist rhetoric and policies just because the U.S. says so.
Alibaba currently has 439 million annual active buyers — defined as those who place at least one order in a quarter — but it wants to get to 2 billion. Year-over-year it’s growing annual active buyers by 14%. Sequentially, it’s averaging 3.3% growth per quarter, but that rate is slowing. In the same four quarters a year earlier, sequential growth averaged 5.9%.
It’s possible that Alibaba has maxed out the number of people it can count on from its domestic market. With Amazon not a real threat in China, investors can rest easy knowing that 78% of its annual revenue is safe from Trump’s game of chicken.
Alibaba’s $2.1 billion in free cash flow for Q2 makes BABA stock a sound investment.
Understanding that its main source of revenue is relatively protected from competition, it’s vital that investors figure out what this means for the BABA stock price. Fear of the unknown has created significant volatility in BABA stock. Trump in office clearly won’t change that.
Use that volatility to your advantage.
Bottom Line on BABA Stock
Alibaba stock went public on Sept. 19, 2014, at $68 per share, jumping 38% on the first day of trading to close just $6 shy of triple digits. BABA stock had quickly hit the big-time.
Over the next two months, BABA stock proceeded to climb all the way to $119.45 only to fall back to $100 by the end of the year. In 2015, Alibaba shares gradually trended downward toward its IPO price of $68 and below, bottoming at $57.20 almost a year to the day it went public. It then bounced back in the final quarter of the year, hitting $81.27 by New Year’s Eve.
Fast forward to 2016 and almost the same thing that happened last year happened this year. Investors walked BABA stock down to a low of $59.85 on Feb. 11 only to push it back over $100 by September. Since then, it’s retreated to the $90s, where it’s traded for the past month or so.
I don’t know about you, but I can see a pattern developing. I’d bet dollars to donuts that BABA stock will test $80, maybe even $60, over the next three months. If it does, I’d be buying in bulk.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.