Alibaba (NYSE:BABA) Cofounder Jack Ma once said, “Only those who can face challenges, and enterprises that can overcome difficulties, will have a bright future.” This is true in entrepreneurship but also in the world of investing. Alibaba stock owners who faced the challenges presented by the novel coronavirus could, indeed, have a bright future ahead of them.
The stock has already recouped some of its losses induced by the spread of the coronavirus. There may be twists and turns along the way. But it is only a matter of time before the buyers push Alibaba back to its previous high mark.
China remains the world’s most populous nation. Although it was hit hard by the spread of the coronavirus, e-commerce should be a major part of China’s recovery. E-commerce is an integral part of Alibaba’s business model. Consequently, investors should expect China’s recovery to provide a major boost to the Alibaba stock price sooner or later.
Keep Calm and Hold Your Shares
In a handbook entitled Digital Action for Entrepreneur in the Age of Covid-19, Alibaba compiled and summarized the lessons learned from the SARS epidemic. This is relevant today for the company and its shareholders. Yes, it is believed that the coronavirus has had a wider global economic impact than SARS. However, there are parallels between the two pandemics and the handbook offers some key takeaways.
For instance, the handbook advises CEOs to keep calm during a large-scale crisis such as a pandemic. Turning our attention to investors, Alibaba stockholders should also remain calm. A much smaller Alibaba survived the SARS pandemic in 2003. And today’s Alibaba will certainly make it through the spread of the coronavirus intact.
In hindsight, Alibaba CEO Yong Zhang can look back at the aftermath of the SARS outbreak and see opportunities for the company to prosper. It might be hard to believe that Alibaba would actually benefit from a pandemic. However, Zhang uses the precedent of SARS to connect the dots:
“Seventeen years ago, the e-commerce business experienced tremendous growth after SARS. We believe that adversity will be followed by change in behavior among consumers and enterprises and bring ensuing opportunities. We have observed more and more consumers getting comfortable with taking care of their daily living needs and working requirements through digital means.”
In other words, stay-at-home mandates during a pandemic can induce a shift in consumer habits towards e-commerce. Zhang continues with an assessment that “the ongoing digitization of China’s economy and society and are ready to see the opportunity to build the foundation for the long-term growth of Alibaba’s digital economy.”
A Permanent Shift
Because of the coronavirus, it is entirely possible that Chinese consumer behaviors have permanently shifted towards digital purchases. 66% of Alibaba’s revenues were derived from Chinese e-commerce last year. Moreover, Alibaba’s revenues from its digital entertainment segment increased by 63% from 2017 to 2019.
Thus, Alibaba relied heavily on digitally derived consumption prior to the spread of the coronavirus. And that’s not a bad thing at all for the company since stay-at-home mandates tend to favor digital purchases and entertainment.
Alibaba’s cloud business could also benefit in a post-coronavirus world. As Loop Capital’s Rob Sanderson explains, “all levels of government will move aggressively to digitize services and that stimulus efforts around infrastructure will be a significant driver of cloud demand.” With that, Sanderson assigned a “buy” rating along with a price target of $280 on Alibaba stock.
The coronavirus outbreak is unfortunate, of course. But Alibaba will come out through the other side of the pandemic as a better, more efficient company. Alibaba and other businesses around the world will, by necessity, learn how to function in a very different world. They’ll have to conduct business with more automation, less travel, and substantially streamlined operations.
The Final Word on Alibaba Stock
A number of changes stemming from the coronavirus outbreak will impact business and consumers permanently. Alibaba stockholders can expect enhanced e-commerce and cloud demand to drive growth as China and the world rebuild towards a new, ultra-digitized economy.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
