Alibaba Group Holding Ltd (NYSE:BABA) shareholders have watched their investments skyrocket by more than 90% year-to-date. They have reasons to celebrate, but those who haven’t yet mustered the courage to dip their toes in are surely wondering whether BABA stock can be a profitable trade from here on out.
I believe it can.
Despite the recent popularity in BABA stock, there are tons of growth catalysts in play that can send these shares higher over the next 12 to 18 months.
Untapped Value in BABA Stock
Take, for instance, the company’s cloud position, which remains underestimated compared to Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT). The fact that AliCloud — which delivered a 96% revenue jump in the most recent quarter — only accounts for about 5% of Alibaba’s total revenue is why analysts aren’t ready to take it seriously.
But soon, Wall Street will have no choice but to value AliCloud on the same plane as AMZN.
“Alibaba had a strong start to fiscal 2018, reflecting the strength and diversity of our businesses and the value we bring to customers on our platforms,” Chief Executive Officer Daniel Zhang said in a statement. “Our technology is driving significant growth across our business and strengthening our position beyond core commerce.”
As with Amazon, Alicloud is growing the number of paid customers, which rose 15% sequentially. Total paying customers just broke the 1 million mark for the first time, rising from 577,000 a year earlier. And these customers are also spending higher than usual, as evidenced by rising usage of services.
Alicloud is poised to be a major profit producer for BABA, especially as the company is now looking to expand the service beyond China.
Alibaba during the quarter increased its total global datacenters to 17, adding two in Indonesia and India. But that’s only one of several overlooked areas where the BABA is looking to assert itself.
The company’s mobile payment platform, Alipay, which some pundits refer to as a “pet project,” is accelerating.
Alibaba founder and Executive Chairman Jack Ma has made it clear that its want to turn Hong Kong into a cashless society. However, Alipay — which boasts some 500 million registered users — has applications beyond China, and may one day become the go-to financier for emerging markets such as India, the Philippines and Malaysia.
To that end, Alibaba has begun to target geographic areas it believes are underserved compared to established markets like Europe and the United States, where the likes of Apple Inc. (NASDAQ:AAPL) and traditional payment services Visa Inc (NYSE:V) and MasterCard Inc (NYSE:MA) dominate.
Elsewhere, Alibaba’s digital media and entertainment business — which includes video service Youku Tudou, Alibaba Music Group and Alibaba Sports — grew 30% in the first quarter to $602 million.
That strong growth was driven by better-than-expected results in mobile value-added services provided by UCWeb. These included mobile search, news feeds and game publishing — all of which not only help better diversify business from core revenue, it also puts BABA in the crosshairs of Alphabet Inc’s (NASDAQ:GOOGL) Google and Facebook Inc (NASDAQ:FB) in terms of future mobile advertising.
That’s to say nothing about the 21% increase in first-quarter innovation initiatives. Combine that with the 58% year-over-year jump in core e-commerce revenue (just shy off a 60% clip in Q4), and Alibaba has tons of long-term revenue drivers.
Bottom Line for BABA Stock
The company’s monster growth projections for the current fiscal year and next were a major catalyst that sent shares soaring to all-time highs. Citing the fact that more small businesses are joining Alibaba’s online community in as a way to grow their revenue, the company forecast fiscal 2018 revenue to grow by 45% to 48%.
This revenue growth target — which was well above analysts’ revenue growth forecast of 35% for the year — calls for sales of up to $34.3 billion, compared to $22.99 billion for the year that ended in March.
As such, BABA stock deserves multiple of expansion of at least four to six points above 2018 estimates of $4.97 per share, which puts Alibaba at a fair value of $200.
That would mean roughly 20% upside from current levels.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.