Alibaba Group Holding Ltd (NYSE:BABA) crushed earnings on Thursday, Aug. 17, and BABA stock finished with roughly 3% gains. But this shouldn’t have been news — Alibaba has been crushing expectations and growing like a weed for some time.
Revenues for the quarter ending in June came to $7.52 billion, with net income of $2.17 billion, or 83 cents per share. Despite investing heavily in offline stores and other companies — which has yet to pay off — Alibaba still is is nearly 29% of revenue to the net income line, and year-over-year growth is doubling.
If that sounds even better than Amazon.com, Inc. (NASDAQ:AMZN). That has been reflected in their shares in 2017, with AMZN up 30% … but BABA stock up 80%. And at $420 billion in market cap, it’s catching up quick to Amazon’s $460 billion.
Alibaba Is Different
Alibaba was created as a business marketplace, and unlike Amazon it’s not into buying in bulk for its own account and warehousing merchandise. It was conceived as an electronic glue between small suppliers and stores. If you want a Chinese Amazon clone, buy JD.Com Inc(ADR) (NASDAQ:JD), which is up 71% so far in 2017.
Alibaba does have retail marketplaces now, and it is going after retail consumers in several ways, including through entertainment, which is booming. But its high margins are purely down to electronic interchanges among businesses and consumers, where it now runs its own cloud and payment services.
After pounding the table here about Alibaba for some time, I finally got in on the action late last year, and now have 200 shares of BABA stock. I bought at an average price of $100, worth $160 each. They’re not real shares, in that they have no ownership rights. They are claims on earnings. But they have been profitable for me.
I can understand why, for various reasons, other InvestorPlace writers take a more negative view. Bret Kenwell was negative on it going into earnings and won’t get the lower prices he is looking for anytime soon.
But our Luce Emerson is right: Alibaba is only getting started.
What Comes Next?
What comes next for Alibaba is a great business war against Amazon throughout South Asia. It’s great for consumers, and will probably not scar either competitor, either.
Alibaba has set up shop in Singapore for Southeast Asia, building a cloud datacenter and international operations for cloud there. While Amazon is focused on building warehouses in India, Alibaba has invested in Paytm, a phone-based payment system, and bought 83% of Lazada, an Indian Amazon clone, for $2 billion over the span of two years. Its strategy is to appear Indian, and to go into business with Indians.
If that sounds better than Amazon’s go-it-alone strategy, it is.
While the U.S. economy is growing at 2% per year, and even China’s growth rate is slowing, peace is bringing huge dividends to countries like Myanmar, growing at 7.4%, and Cambodia, with the whole regional economy growing at nearly 5% per year. That’s about double the growth rate of Latin American countries like Mexico.
Bottom Line on BABA Stock
Post-earnings analysis of Alibaba has set a new price target of $190 on the stock, and I think that may prove pessimistic. The company remains focused on electronic infrastructure, and is buying a stake in China’s state-owned China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) mobile service to make certain that stays strong.
Cloud, electronic infrastructure, and online delivery of commerce services are the Alibaba play. It is different than the Amazon play of physical e-commerce infrastructure. It is also more profitable, and should remain so for years to come.
I pity the fool who sells BABA stock here.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he was long AMZN and BABA.