In many ways 2019 has been a terrible, horrible, no good and very bad year for Alibaba (NYSE:BABA) stock.
There’s the trade war, which is hitting China’s economy harder than our own. Alibaba sought a listing in Hong Kong and Hong Kong blew up. Founder Jack Ma is retiring next month. All the technical signs on BABA stock are bearish and a June rally fizzled.
Yet analysts keep pounding the table for Alibaba. Here is our Laura Hoy doing it. Here am I doing it. I went further, getting back into the stock in July after selling out in February. (So far, I’m losing money on that purchase.)
What do analysts see that investors don’t?
BABA Stock: More Than China
The trade war hurts Alibaba less than you think.
As U.S. companies rush out of China and seek supply contracts with Southeast Asia, Alibaba Cloud is there. Its cloud is rated first in the Asia Pacific region by Gartner Group. That’s ahead of Microsoft (NASDAQ:MSFT), way ahead of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), ahead of even mighty Amazon (NASDAQ:AMZN). BABA has 15 availability zones in Southeast Asia and is the only cloud with data centers in both Indonesia and Malaysia. Its market share there increased in 2018 to almost 20%.
Then there is the nature of that cloud. While Amazon pushes infrastructure, Google a platform and Microsoft its partners, Alibaba is a Software as a Service (SaaS) cloud, specifically Alibaba software. This makes it more than sticky. Alibaba becomes a company’s accountant, marketing solution, resource planner and database. All the key applications that have evolved to make U.S. enterprises so efficient over the last 20 years are all there.
For growth-oriented investors, India is the alternative market and fintech the technology of the moment. AliPay, Alibaba’s payment network, owns 38% of PayTm, India’s largest mobile payment network. If you’re hot about Facebook (NASDAQ:FB) and its Libra proposal, AliPay’s network is backed by a money market fund with $150 billion in assets. It’s so far ahead as to nearly be out of sight, and early leads matter in tech markets, if the leading company is sustainable.
What About China?
Alibaba is now more closely tied to the Chinese consumer than Amazon is to the American one. It has malls, supermarkets and even convenience stores selling goods and collecting data.
This is a big problem for Alibaba stock, as our Bret Kenwell wrote recently. Ultimately, support for the shares may be at as low as $130. You might time things for a much better entry point than I got.
Alibaba’s decision to do a joint listing in Hong Kong, which looked so smart a few months ago, now doesn’t look too clever. Listing in Hong Kong is more a “coming back to China” than some analysts anticipated. Hong Kong’s problems are going to stay in Alibaba stock until they’re resolved, and maybe even later, if China carries through with implied threats to assume direct control.
The Bottom Line on BABA
Trade wars are unhealthy for economies and other living things.
This is true for all economies — China’s, America’s and that of the world.
But wars do end. When they do, you’re going to want stability, a stake in the future of payments, software and the cloud, focused on the fast-growing markets of Asia and Africa.
You can buy BABA stock for less than I paid. You might want to hold your cash until the present volatility ends.
But you don’t want to miss this long-term trend. Between China, Southeast Asia, India and Africa, 1 billion people have been brought into the global middle class in this century.
Alibaba stock is where the future lies … and it’s not just in China.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available 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 MSFT.
