Since I last wrote about Alibaba Group Holding Ltd (NYSE:BABA), BABA stock has moved in a narrow trading range between $101 per share and $104, opening for trade Mar. 6 at about $103.
Investors seem torn between U.S. government statements calling Alibaba’s Taobao a “notorious market” rife with counterfeits (an issue BABA says it wants China’s government to address through criminal law) and a more sanguine view based on the company’s continual international expansion, most notably to India.
I have called Alibaba an “anti-poverty play” because it uses technology to connect small producers to big markets, and deliver the world’s newest consumers to the digital mainstream.
I’m not willing to say Alibaba stock will rise 20% over its present level, based on its meeting earnings estimates, as InvestorPlace contributor Richard Saintvilus has claimed. But I do feel investor patience in BABA stock will be rewarded over one year, three years or five because of the company’s unique value proposition.
BABA Stock: Remember the Omnichannel
A few years ago, many U.S. retailers like Macy’s Inc. (NYSE:M) were talking about the “omnichannel,” combining brick-and-mortar stores with online retailing.
Alibaba believes in the vision, but it has a more sophisticated way of going about it. Instead of just having just a freestanding store and a Website tied to it, Alibaba is using the Chinese stores it is aligned with, electronics and appliance retailer Suning Commerce and mall operator Intime, as testbeds to turn shopping into a game.
For instance, why can’t the mall become the focus of an augmented reality game akin to Pokemon Go, in which players collect discounts that can be used either online or offline? Why can’t you add virtual reality to products inside a store, so customers can learn all about them by picking them up, compare the offer to others and buy them on the spot?
BABA can do all this because it owns a payment system called Alipay, it owns the Alibaba Cloud that handles the back-end of the game, it owns the Tmall virtual mall and Taobao stores and it runs logistics through a company called Cainiao.
The result is a new type of shopping experience for luxury retail, one that can scale and go down-market quickly.
Making Employees Stakeholders
While U.S. reporters are focused on India e-commerce as a “two-horse” race between BABA and Amazon.com, Inc. (NASDAQ:AMZN), it’s how the company is moving into India that is most interesting to me.
First, it’s going in through payments, taking a majority stake in Paytm E-commerce Pvt., the commerce end of a payments business.
Second, the deal is structured so that Alibaba’s current stake of 62% can be cut to 52%, with employees holding 10% of the company. BABA has been recruiting Indian executives to run its Indian businesses and it is keeping the founder of parent company One97, Vijay Shekhar Sharma.
The ownership becomes complicated — the payments and e-commerce units of One97 are separate companies, with separate stakes held by Alibaba and its Indian partners, but the result is an integrated experience run by Indians, partially owned by Indians but controlled by BABA, and with full access to the company’s other resources.
Alibaba Stock: A More Entrepreneurial Play
Alibaba’s complex of interlocking companies makes it a more entrepreneurial place to work, with compensation tied to employee performance within each unit, and the holding company holding the various elements together.
It’s the kind of structure an underdog company is going to deploy, and it’s important to note that BABA is still just a fraction of the size of Amazon, with its reported 53 billion yuan of revenue for the December quarter translating into just $7.5 billion, based on the dollar-yuan exchange rate, currently about 6.9.
But that also means that it takes less growth, in absolute terms, for Alibaba stock to equal the percentage growth of Amazon. With Alibaba determined to keep up with its larger rival, on a global scale, that makes it a good place to invest.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and BABA.
