Any investor even casually acquainted with Alibaba Group Holdings (NYSE: BABA) knows about its massive ecommerce business and its burgeoning cloud computing business. However, according to Bank of America, BABA stock affiliate Ant Financial’s Alipay payment app is a much bigger deal than investors may realize.
BABA Stock Super App
Bank of America analyst Eddy Leung calls Alipay a “super app.” Here are some of the numbers driving that high praise.
Americans are familiar with digital payment leader PayPal (NASDAQ: PYPL). As of the end of Q4, PayPal had an estimated 267 million global active accounts. Leung estimates Alipay has more than 600 million mobile users.
In addition, Alipay has the largest mobile and PC market share in Chinese payments at roughly 50%. Even better, that market share has barely budged since late 2016. Alipay is dominating the market and keeping competitors like Tencent (OTC: TCEHY) and Baidu (NASDAQ: BIDU) at bay.
Alipay offers a variety of useful payment services within it’s app. It also is expanding its services outside of payments. For example, Alipay now offers transportation pass services for bikes and buses in some large cities. It also offers delivery services and dining reservation services. Alipay users have utility booking and payment services at their fingertips. Alipay has also implemented a user rewards credit system and even offers charitable donations services.
Leung says Alipay’s large, stable market share allows it to focus on monetizing its users and increasing engagement rather than growing its user base. The latest mobile app usage data from China suggests those efforts are paying off.
Alipay is already the third most popular app in China in terms of monthly active users behind only WeChat and QQ. It’s still a distant fifth place in terms of engagement. However, engagement numbers are significantly higher than they were just a couple of years ago.
More than 80 percent of Alipay users now use the app for multiple services, according to Bank of America. More than 60 percent use at least three services, while more than 20 percent use five or more different services. Service use is up across the board compared to a year ago.
“We see Ant Financial (‘Ant’)’s Alipay app emerging into a large mobile platform, going beyond its leading position in an already very large vertical segment and increasingly serving the needs in everyday life of its users and offering bigger opportunities to cooperate with the other business units under Alibaba,” Leung says.
BABA Stock Overlooked
Whether because of the ongoing trade war with China, distrust of Alibaba’s corporate structure or the fact that U.S. investors are more familiar with Amazon’s services, Alibaba stock is often overlooked by U.S. investors.
As a result, Alibaba has put up staggering growth numbers in ecommerce and cloud services that have put Amazon to shame in recent quarters. Yet BABA stock has barely moved in the past year. Leung and Bank of America have a “buy” rating and $215 price target for BABA stock.
I recently wrote about why some of the common bear arguments against Alibaba don’t hold weight. Alibaba’s market is much bigger and faster-growing than the U.S. market, it is essentially protected from international competitors and it is on the cutting edge of technologies that will dominate 21st-century China.
Alipay is just one of the dozens of businesses under Alibaba’s wing that have massive long-term disruptive potential.
As of this writing, Wayne Duggan was long BABA stock.