So far in the year, Alibaba (NYSE:BABA) stock is up 20%, which technically means that a bull market has begun in the shares. Yet that number tells only half the story for the year. On March 23. BABA stock saw a 2020-low of $169.95. But on July 6, it hit an all-time high of $268. Now it is around $255. So since then, the stock is up an eye-popping 50%. Put another way, if you were brave enough to invest $1,000 in the company in early spring, you would now have $1,500.
As we’re in the midst of a busy earnings season. In the coming weeks, there will likely be further volatility in many tech and China-based shares with a potential for short-term profit-taking. Yet, Alibaba is one of the most important Chinese companies to be listed on U.S. exchanges. Over the past two decades, it has expanded from a single e-commerce sales platform into a multinational technology company. Therefore, long-term investors with a two- to three-year time horizon may consider buying the dips in Alibaba stock, especially if the price declines below $240. Here’s why.
How Q1 Results Came
Alibaba’s business segments extend into both online and physical retail, apps, digital media and entertainment, and increasingly the cloud. It is still best known for its e-commerce platforms, including T-Mall and Taobao. Yet in cloud computing, it is now the market leader in Asia. It also provides technology for companies to operate and improve their efficiencies and sell their products.
In late May, the group announced financial results for the quarter and fiscal year ended March 31. Revenue was over $16.1 billion, an increase of 22% YoY.
Annual active consumers on the China retail marketplaces reached 726 million, an increase of 15 million from the 12-month period ended December 31, 2019. Similarly mobile MAUs on Alibaba’s China retail marketplaces reached 846 million in March 2020, an increase of 22 million over December 2019.
Net income was 449 million, a decrease of 99% YoY. Management highlighted that this decrease was primarily due to a net loss in investment income, mainly reflecting decreases in the market prices of Alibaba’s equity investments in publicly-traded companies,
In the report, analysts paid attention to three main segments:
- Core commerce (BABA’s largest segment).
- Cloud computing (revenue soared 58% YoY).
- Digital media and entertainment (revenue increased 5% YoY).
CEO Daniel Zhang said, “Our overall business continued to experience strong growth, with a total annual active consumer base of 960 million globally, despite concluding the fiscal year with a quarter impacted by the economic effects of the COVID-19 pandemic.”
Following the results, Alibaba stock initially stayed in a range around $200. But after a few days, a new up leg in price began, in part buoyed by the general optimism regarding a potential V-shaped recovery, both in China and the US.
Long-Term Catalysts for Alibaba Stock
The COVID-19 pandemic is fast changing how global citizens live and work. The first half of 2020 has seen billions of global citizens shelter-in-place as part of lockdowns against the spread of the novel coronavirus. As a result, stay-at-home and work-from-home trends have emerged. Now consumers are increasingly relying on services and industries that make this new way of life and work easier to maintain.
Mr Zhang underscored how Alibaba would likely benefit from this trend when he said “The pandemic has fundamentally altered consumer behavior and enterprise operations, making digital adoption and transformation a necessity. We are well positioned and prepared to help large and small businesses across a wide spectrum of industries achieve the digital transformation they need to survive this difficult period and eventually prevail in the new normal.”
With both its e-commerce and cloud operations, Alibaba is at the right place at the right time. And Alibaba stock offers U.S. investors the chance to invest in the growing Chinese consumer, e-commerce markets and technology markets. In the second quarter of 2020, the Chinese economy grew by 3.2% YoY. By comparison in Q1, the economy had reported a record 6.8% contraction.
In other words, although many analysts have expressed growth concerns due to the effects of the pandemic, the China’s economic fundamentals have improved considerably over the past several weeks. Given that China is the most populous country in the world, we can expect its economy to show resilience long-term despite occasional hiccups. And that would likely propel Alibaba stock to new highs in the coming years.
So Should You Buy Alibaba Stock Now
Alibaba stock’s 52-week range has been $151.85$-268. The stock is expected to report earnings next in late August. Between now and then, there may be short-term profit-taking in a broad range of shares, including Alibaba stock.
However, it is important to remind our readers that many U.S. companies already use Alibaba’s platforms to reach consumers in China, a market that’s competitive yet attractive. And the group is aiming to increase its reach further and have more American business list their products on the company platforms. When Alibaba reports in August, BABA shareholders will pay special attention to management’s outlook on major economic and operational trends.
Earlier in June, Blackrock (NYSE:BLK) CEO Larry Fink said “China will be one of the biggest opportunities” for the the world’s largest asset manager. Investors who also agree with this bullish long-term view may consider buying the dips in Alibaba stock.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
