Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) has had an impressive run. BABA stock is up 112% so far this year, but I, like many analysts, don’t think the ride is over yet. As we draw closer to the beginning of 2018, it’s hard to imagine BABA stock price dropping. In fact, the firm looks poised to have a bumper 3rd quarter. There are many growth catalysts on the horizon for Alibaba, and that suggests that the firm’s share price will push above $200 within the next few months.
Here’s a look at three reasons BABA stock has the potential to rise above $200 by the end of January:
It’s impossible to mention Alibaba right now with out talking about Singles Day, a massive shopping holiday in China where people are encouraged to spend money on themselves. Think ‘Black Friday’ on steroids.
Singles Day always takes place on November 11, and this year Alibaba did $25.3 billion in sales during the made-up holiday. To put that into perspective, Amazon.com Inc. (NASDAQ:AMZN) had its annual Prime Day sale and was estimated to have moved $1 billion worth of goods, and last year’s Black Friday weekend only totaled about $8 billion.
If that doesn’t add some fire to BABA’s stock price, I’d be very surprised. Alibaba practically invented Singles Day and its massive success is a testament of BABA’s ability to influence Chinese consumers. It also is a sign that China’s middle class is ready to spend some if its disposable income, which is something I have questioned in the past.
Ling Shou Tong
Perhaps the biggest reason to get excited about Singles Day is the second reason BABA stock is likely to climb in the months ahead- Ling Shou Tong, or “connect retail.” Alibaba founder Jack Ma has been looking to expand BABA’s reach through cloud computing and logistics businesses and Ling Shou Tong is his answer.
Ahead of Singles Day, Alibaba made its way into about 600,000 convenience stores, or 10% of the total number of independent convenience stores in the country, by upgrading their computer systems and acting as a kind of inventory management system. BABA allows the stores to manage procurement and sales, but the company’s Ling Shou Tong app uses customer data to help the stores determine which goods to stock and how to display them. Alibaba then ships the goods itself to fill stores’ orders.
Not only does this system helps BABA ingrain itself deeper into the cloud computing space, but it gives the company access to a larger footprint of physical stores that can act as delivery and storage centers.
BABA has also started work on “smart stores” together with several big-name brands like L’Oreal and Levis. BABA’s technology helps customers track the availability of goods from one store to another and allows for home delivery options as well.
Ling Shou Tong is only the tip of the iceberg for BABA’s cloud business, but the fact that MA got the app up and running ahead of Singles Day means that he was not only able to test it out, but the system got a lot of press as well. When Alibaba releases its 3rd quarter results at the end of January, I’d expect Ma to break out some of the data regarding “connect retail” and that’s likely to send BABA stock higher.
Alibaba’s most recent earnings report showed that cloud computing revenue was up a staggering 99%, and although the company’s overall growth is seen slowing slightly in the year to come, I believe its cloud computing arm will continue to make impressive strides.
Alibaba Cloud is already the largest public cloud computing service provider in China and with over a million paying customers, it’s the third largest worldwide. Just like Aibaba did with Alipay, its mobile payments arm, the company is looking to expand its reach within the cloud computing space alongside its ever growing core e-commerce business. From my perspective, the success of Alipay is a good indicator that BABA will be successful.
The Bottom Line on BABA Stock
At $186 per share, BABA stock may not come to mind as a “cheap” buy at first. However, the firm’s impressive history of growth proves that the firm has a lot of momentum. With so many game-changing moves being made in the current quarter, I’d be surprised if BABA doesn’t make its way above $200 in the lead-up to its Q3 results at the end of January.
As of this writing, Laura Hoy was long AMZN.