While cloud computing is the big business story of the last decade, every builder has courted controversy in its efforts to capitalize on the cloud’s advantages.
For investors, shying away from such controversy is a great way to miss profits. Whether you’re worried about Apple’s (NASDAQ:AAPL) privacy promises, Facebook’s (NASDAQ:FB) ad policies, Amazon’s (NASDAQ:AMZN) control over e-commerce, Microsoft’s (NASDAQ:MSFT) valuation or Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) access to data, the struggle against clouds has become a political struggle.
This is never more true than when considering Alibaba (NYSE:BABA). Everything it does, in the normal course of business, will be criticized. Whether it’s the Hong Kong listing, the company’s Single’s Day promotion, or its international expansion efforts, you’re going to see pushback.
For now, the pushback remains futile.
Alibaba’s Hong Kong Listing
It’s important to note that listing in Hong Kong doesn’t mean the company is entirely “going back to China.”
Chinese investors must still exchange currencies to buy Alibaba stock. The Hong Kong dollar currently is worth 13 U.S. cents. It is worth just slightly less than the Chinese Yuan, but the conversion isn’t free. As anyone crossing a financial border knows, the money changers always take a cut.
The listing of new shares worth about $13 billion gives Alibaba cash it doesn’t need, and will result in a one-to-eight split for current Alibaba shareholders.
Post-split, Alibaba shares will trade at about $24, but they will lose real value. None will convey meaningful ownership because of Alibaba’s dual-share structure, which is why it didn’t list in Hong Kong until now. For American investors, Alibaba is based in the Cayman Islands.
Given these rules, why should you buy BABA stock? Many U.S. stocks have rules just as onerous. Alphabet shares convey no ownership. Neither do public shares in the The New York Times Company (NYSE:NYT). With dual-share structures in place, investors in public markets can’t oust GOOGL or NYT’s management.
Singles Day
Singles Day has outgrown its creators.
This year it saw $38 billion of gross merchandise value change hands. But it missed founder Jack Ma’s expectations. He hopes to make it a worker holiday in the future.
However, that $38 billion didn’t necessarily hit Alibaba’s revenue line. BABA brought in 119 billion yuan in its September quarter. But it doesn’t take ownership of what it sells. That’s why 60% of Alibaba’s revenue becomes net income.
If you’re an Alibaba shareholder, your take on Singles Day is yet to be revealed.
International Expansion
The power of Alibaba only becomes apparent when you take it outside China.
Alibaba’s cloud isn’t like Amazon’s. It’s selling financial database applications, like Salesforce (NYSE:CRM), meaning it’s at the top of the cloud stack. For those worried about Facebook getting into payments, Alibaba’s Alipay is already there, backed by over $150 billion in assets.
At its heart, Alibaba is a logistics company. Ma worries about the U.S.-China trade war, which he now says could last decades. But that’s not relevant, because Alibaba’s cloud is strengthening its hold on Europe, Africa and East Asia, delivering a higher level of value than American cloud companies can.
The Bottom Line on Alibaba Stock
China doesn’t worry about Alibaba or its cloud becoming too valuable. At its Nov. 19 opening price of almost $187 per share, Alibaba’s market capitalization is $484 billion.
Facebook, the smallest of America’s cloud companies, has a market cap of $568.7 billion. Facebook needs to watch its back. BABA stock will double first.
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 AMZN, BABA, AAPL and MSFT.
