Why Alibaba (BABA) Stock Is a Prudent Choice for Investors

Alibaba Group Holding (NYSE: BABA) has been one of the best-performing e-commerce stocks so far this year, courtesy of its dominant position in China and expanding cloud business. We believe BABA stock can continue to climb.

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This Zacks Rank #1 (Strong Buy) company has been flourishing under the leadership of Chairman Jack Ma. You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, BABA stock has performed well since it went public. Alibaba stock, which was valued at around $94 back in 2014, currently trades close to $173, reflecting a jump of 75%.

Further, BABA has a remarkable earnings surprise history. It outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 19.37%.

Currently, Alibaba has a Growth and Momentum Score of B.

One-Year Price Performance

Ma’s Retirement Unlikely to Hurt Momentum

The Chinese behemoth is now on the verge of a transition as Ma stepped down on Sept. 10. He has been instrumental in shaping the company’s growth trajectory.

Ma can be credited for making BABA the largest online retail platform of China. Further, he helped the company foray into uncharted territories like cloud computing and smart speaker markets with the launch of Alibaba Cloud and Tmall Genie, respectively.

Under Ma’s leadership, the market capitalization of BABA stock hit $452.34 billion.

Although Jack Ma’s contribution toward Alibaba’s development is unparalleled, we believe his retirement will not have much of an impact on BABA stock owing to the company’s strong fundamentals.

The company’s robust online retail platform, strengthening cloud computing business and well-performing digital media and entertainment segment are expected to drive growth in the near term. Further, its strategic acquisitions are a key catalyst for BABA stock.

Let’s delve deep to find what has made Alibaba stock a top performer in 2019.

Dominance in the Chinese E-commerce Space

BABA holds the dominant position in the online retail market of China, which, per a report from Forrester, is anticipated to reach $1.8 trillion by 2022. Further, sales in this market are expected to rise at a compund annual growth rate of 8.5% between 2018 and 2022.

Although global e-commerce giant Amazon (NASDAQ: AMZN) and JD.com (NASDAQ:JD) are trying all means to expand their footprint in China, Alibaba’s direct-sale businesses — Tmall Supermarket and Freshippo — have thwarted their efforts.

Further, the company’s latest acquisition, of NetEase’s (NASDAQ:NTES) online luxury retail platform, Kaola, is a growth driver. With this buyout, Alibaba is aiming to expand its foothold in the Chinese e-commerce market.

This has been a major defeat for Amazon as the company was discussing merging its China business with Kaola.

Growing Cloud Business

Alibaba Cloud has been gaining traction in the cloud market for some time now. In the last reported quarter, the company’s cloud-computing segment generated revenues of RMB7.8 billion (US$1.1 billion) contributing almost 7% of the company’s total revenues. Further, the figure was up 66% year-over-year.

The company is experiencing an increase in average spending per customer, despite strong competition from AWS, Microsoft’s (NASDAQ:MSFT) Azure and Alphabet’s (NASDAQ:GOOGL) Google Cloud.

Per data from Synergy Research Group, Alibaba continues to expand its market share.

We believe Alibaba’s expanding cloud portfolio is likely to keep aiding its top-line growth, providing a positive catalyst for BABA stock. The company recently unveiled ten cloud-related products, including PolarDB, Alibaba Log Service, Support of “Bring Your Own Key”, SaaS Accelerator, Smart Access Gateway (SAG) Software, Container Registry (ACR) Enterprise Edition and Container Service for Kubernetes.

Alibaba Group’s Revenue Growth Over the Preceding Year

Alibaba Group Holding Limited revenue-ttm | Alibaba Group Holding Limited Quote

The Bottom Line on BABA Stock

We believe that e-commerce will remain one of the major growth drivers for Alibaba, thanks to its robust product portfolio, strengthening IoT capabilities and aggressive international expansion strategies.

Further, the company’s strengthening footprint in the international cloud market is encouraging. All these are likely to maintain Alibaba’s solid momentum, making BABA stock a prudent choice for investors.

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Dominance in the Chinese E-commerce Space

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