Alibaba (NASDAQ:BABA) might have the bulk of its difficulties behind it, and Alibaba stock keeps growing in pace with returning confidence in the company.
One of the things that maks Alibaba such a formidable company is Alibaba Cloud. In contrast to most U.S.-based clouds, Alibaba Cloud is built entirely to run Alibaba applications. These are business applications designed to wrap people and supply chains entirely in Alibaba’s embrace.
Facebook (NASDAQ:FB) is trying to do a similar thing with its forthcoming “Libra” project. Despite the folderol in its white paper about being “cryptocurrency” or “blockchain,” underneath it’s a lot like Alipay, the mobile payment system Alibaba founded in 2004.
Alipay parent Ant Financial is now worth an estimated $150 billion, with over half of China’s online payment market. Alibaba took direct control of Ant last year.
If anything is going to keep U.S. and European governments from dismantling the massive cloud companies in the West, it’s the threat and success of Alibaba.
Alibaba Stock and the West
While deep thinkers like Lisa Khan and Elizabeth Warren have been drawing up rationales for breaking up Amazon.Com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), and Apple (NASDAQ:AAPL), Alibaba has become the realization of all their fears. China’s government cheers it on.
Founded 20 years ago as a way for small Chinese producers to reach shops in China’s cities, Alibaba under CEO Daniel Zhang has become a retailing behemoth. Founder Jack Ma calls retailing one of five elements in a “new” strategy, which includes new manufacturing and energy technologies as well as its cloud and payments.
Alipay is centered on a mobile wallet, integrated with point of sale and back office payment systems, a digital bank for both buyers and sellers. Its primary competitor in China is WeChat Pay, run by Tencent Holding (OTCMKTS:TECHY).
By building Alipay from scratch and gaining control of China’s market, Alibaba can now seek a global footprint. A river of Chinese tourists now bring Alipay with them when they travel. Alipay is buying control of India’s PayTM. It’s expanding rapidly in Europe.
High-end U.S. retailers are taking Alipay. Marriott International (NYSE:MAR) is rolling out Alipay support. Alipay is now the biggest rival to the Visa (NYSE:V) – Mastercard (NYSE:MA) duopoly, and all their banking and processing affiliates.
The Facebook Approach
Libra is Facebook’s effort to replicate Alipay’s low-cost, centralized payment infrastructure. Should it succeed it could be the excuse Facebook needs to buy Square (NASDAQ:SQ), now worth $31 billion, or some other scaled processor, moving its software into the Facebook cloud and adding merchant financial services to the mix, just as Alibaba Cloud offers a full suite of business software.
While Facebook is doing this from a standing start, Alibaba’s growing success could be the way it gets around regulatory hurdles. Alibaba’s Cloud and Alipay can become Facebook’s new business model, one that’s far more lucrative than advertising alongside cat videos.
The looming power of Alibaba in retailing, in cloud, and in payments, and China’s hands-off attitude toward it, could be what stays even a Warren Administration from going after the U.S. cloud companies. There is a real risk of losing the cyber world to Alibaba, Tencent, and Baidu (NASDAQ:BIDU).
The Bottom Line on Alibaba Stock
Since hitting a near term bottom of about $150 per share at the end of May, Alibaba stock has risen 16% to open July 2 at about $175. That’s a market cap of about $452 billion, 50 times earnings and just 8 times the $56 billion in revenue achieved in fiscal 2019, which ended in March.
Compare that to the 80 times earnings price of Amazon, with all its antitrust troubles, or the 20 times revenue investors now pay for Visa with all its technology debt and it is easy to see why Alibaba already is set to become the dominant global company it is in China.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA, AMZN and AAPL.
