Alibaba Group Holding (NYSE:BABA), often dubbed the “Amazon of China,” is indeed a major e-commerce company and much, much more. The companies various enterprises include Ant Financial, AliExpress, Taobao.com, Alimama, 1688.com and, like Amazon, a burgeoning cloud computing business.
Still, when many U.S. investors evaluate Alibaba stock, they do so from the point of view that this is an e-commerce company. That remains an accurate assessment for Alibaba stock because the company is the dominant online retail player in the world’s largest Internet market.
Shares of BABA stock are up 36.4% year-to-date, besting Amazon (NASDAQ:AMZN) by more than 700 basis points. Alibaba stock is also beating the MSCI China Index by more than 1,500 bps this year. Amazon has a market value of about $930 billion, making it one of the largest U.S. companies, while Alibaba stock has a market capitalization of $486.6 billion. Alibaba stock also trades at a significant discount to its U.S. rival with a forward price-to-earnings ratio of about 28x compared to 51x on Amazon.
Plenty Of Catalysts
Alibaba stock currently resides around $187, but the average analyst price target on the shares is $206 and BABA stock labors 11.7% below its 52-week high, so a case can be made that there is still some upside potential in the shares.
Earlier this year, Bernstein analyst David Dai reaffirmed his outperform rating and $200 price target on the shares.
He highlighted that Alibaba has 636 million users on its internet platform who conduct 50 billion transactions per year,” according to Barron’s. Alibaba dominates e-commerce in China with 66% market share. Dai predicts Alibaba can grow its gross merchandise sales volume by 18% annually for the next three years.
China’s internet market has far more users than the U.S. has citizens, underscoring the heft of China’s e-commerce market. Importantly, internet penetration remains low in China compared to large developed markets, meaning there remains a significant runway for BABA stock and rival Chinese e-commerce players.
“China is shifting from an industrial/export-driven economic model that represented the ‘old China’ economy to a services/domestic consumption-based economic model that characterizes the ‘new China’ economy,” according to KraneShares research.
“In 2013, China’s services sector surpassed its industrial sector as the largest contributor to GDP for the first time, and since then, it has continued to steadily outgrow the industrial sector,” according to the research. BABA stock is the second-largest holding in the 37-stock KraneShares MSCI All China Index ETF (NYSEArca:KALL) portfolio.
As was noted earlier, an important element with the Alibaba stock story, as it is with the likes of Amazon and Microsoft (NASDAQ:MSFT), is cloud computing. By some estimates, Alibaba’s cloud business is an $80 billion unit. In 2017, Alibaba’s cloud market share in the Asia Pacific region was 14.9% before jumping to 19.6% last year.
“The cloud arm of ecommerce behemoth Alibaba, Alibaba Cloud, has been found by a report from Gartner to be Asia Pacific’s largest infrastructure as a service (IaaS) and infrastructure utility services (IUS) provider by market share for the second year running,” reports Gigabit.
Bottom Line on BABA Stock
BABA stock has multiple tailwinds and trades at valuations that are favorable relative to some the comparably sized U.S. internet and e-commerce stocks. An upcoming catalyst is the company’s first-quarter earnings report, slated to be delivered prior to the open of U.S. markets on May 15. In the prior two quarters, Alibaba delivered positive earnings surprises. If that happens and the company guides higher, Alibaba stock could force analysts to adjust price targets higher.
Todd Shriber does not own any of the aforementioned securities.