Alibaba Group (NYSE:BABA) stock is up over 34% year-to-date. In its most recent quarter, BABA stock reported earnings per share (EPS) of $1.49 on $16.65 billion of revenue. That easily topped analysts’ consensus estimates of $1.19.
But BABA trades for almost 90% less than Amazon (NASDAQ:AMZN). This seems odd because although Alibaba is frequently referred to as “The Amazon of China”, the two companies don’t bear a close resemblance.
That’s one reason I was amused by a recent article that asked which company was the better buy, Amazon or Alibaba? The article focused almost entirely on the e-commerce aspect of Alibaba Group. I understand the desire to find a comparison point. However, this kind of comparison explains why some investors misunderstand Alibaba Group.
Alibaba Group has a financial ecosystem that ranges far and wide. It’s so much more than e-commerce. The fact is the company is firmly entrenched in cloud computing and in another key area, financial technology or fintech.
A Global Fintech Leader
Alibaba Group is many businesses in one. But there is one area in which Alibaba is light years ahead of any individual U.S. company and that is financial technology, or fintech.
Alibaba first started its move into fintech in 2004 with the launch of AliPay. What started out as a simple way to secure online payments for Alibaba platform users has now expanded to become part of Ant Financial, the financial branch of Alibaba and the key to the company’s fintech ecosystem.
The volume of mobile payments in China has grown exponentially. What was a $1 trillion industry in 2015 was $15.5 trillion in 2017. This shows China’s rapid transition to a cashless economy. And AliPay accounts for 83% of all mobile payments in China.
But AliPay is more than just a mobile payment app. Ant Financial branches out into four additional categories: wealth management, credit scoring, insurance, and loans. According to estimates, approximately 480 million customers use three or more of these products and over one third (190 million) of customers use all five categories. In fact, Ant ranks as one of the 10 most valuable financial institutions in the world.
China Is Increasing its Fintech Spend
After cutting back on fintech spending in 2017, China increased its fintech investment to $18.2 billion in 2018. That was 80% of the entire continent of Asia.
China’s fintech investment is undergoing a gradual shift as more capital gets channeled to big data, artificial intelligence, cloud computing and blockchain, and away from retail products. And guess who is in a position to set the pace for the innovations that are likely to come from this investment boom? You guessed it, Alibaba.
Investors May Be Looking at the Wrong Thing
If you look at anything too long, you can start to find flaws. When it comes to Alibaba stock, it seems many investors can’t help but find something they don’t like.
Single’s Day sales break records, but the company had its weakest sales growth since 2009. What does that say about the Chinese consumer? Not much really.
The company is launching a listing in Hong Kong on Nov. 26 despite on-going protests in the city to raise $13.4 billion. Except it is money that the company doesn’t really need.
And it’s true that in order to protect its traditional banking institutions, the Chinese government puts limits on fintech innovation, thus limiting their growth. But that only makes Alibaba’s continued growth all the more impressive.
All of the questions show a lack of understanding of what Alibaba is, which is unlike anything that any single U.S. company has to offer. And with the growth of its fintech sector, that gap will continue to grow. And no matter how you look at that, the future looks bright for BABA stock.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
