The delay is a result of the regulatory clampdown on Ant Group’s lending activities.
Alibaba owns a 33% stake in Ant Group, but the impact on BABA stock is considerably higher than expected. The company’s negative coverage and the barrage of news surrounding the Ant Group continues to weigh down BABA stock. However, I expect the company to come out of this crisis unscathed and for its stock to recover.
In the meantime, it’s an excellent opportunity for investors to scoop up BABA stock at a discount.
BABA stock is currently trading at $276, roughly 13% lower than its value in late October. Analyst estimates for the stock are almost 22% higher than its current stock price. Additionally, its forward PE ratio is at 24.4, which is significantly lower than its peer group average of 292.
Despite posting an earnings surprise in each of the past four quarters, BABA stock remains undervalued. The recent episode with Ant Group has further pushed down its value presenting a rare chance for investors to get on the BABA train.
Another Strong Quarter
With greater consumer spending and e-commerce recovery, Alibaba’s second-quarter results remained strong. Revenues rose 30% year-over-year to $22.84 billion, along with a 37% increase in its earnings per share.
Additionally, non-GAAP net income was at $6.9 billion, from the $6.74 billion it made in the first quarter. Retail active consumers also improved sequentially to 757 million from 742 million in the first quarter, along with 881 million mobile monthly users.
Moreover, the company’s cloud business reported a 60% year-over-year increase of $2.19 billion. Demand remains stable, but it’s still operating at a loss, which should turn a profit by the end of the fiscal year. In August, the company launched three new data centers with a $28 billion investment in cloud infrastructure for over three years.
With a long-term growth forecast of over 25% and China’s booming online shopping industry, expect Alibaba to continue its growth story. Moreover, political tensions are also expected to ease with the election of Joe Biden as the President-elect of the United States.
Hence, the bilateral policy’s predictability between China and the USA could be a tailwind for the company’s progression.
Moreover, the company recently launched two of its 11.11 shopping festivals, drawing “hundreds of millions” of consumers in the company’s words.
The Ant Group Conundrum
Ant stock’s much-anticipated listing on China’s stock exchanges was halted after Jack Ma, Alibaba’s co-founder, criticized its financial regulators.
In his speech at a government forum last month, he talked about how the country needed a new financial platform for those with insufficient collateral. Ant was expected to have a valuation of over $300 million, making it the most lucrative IPO in history.
Earlier this month, The Chinese financial regulators set new draft rules for online micro-lenders, including Ant. It directly impacts Ant’s CreditTech segment, which accounts for roughly 40% of its revenues.
The move will impact the company’s loan growth and return on equity. Ant has been on a roll of late with a 38% growth in revenues in the first half of 2020. Such numbers are comparable to established Fintech companies such as Square (NYSE:SQ) and PayPal (NASDAQ:PYPL).
Alibaba has a 33% stake in the company, and a successful listing could have opened the door for more IPOs for its affiliate companies. Additionally, getting on the wrong side of the Chinese authorities is not a good idea either.
It will be interesting to see how the situation develops, but, likely, it won’t affect Alibaba in the near-term. Its core business remains strong, and its non-core business, such as its cloud segments, continues to grow impressively.
Bottom Line on BABA Stock
Alibaba’s investors have had a few things to consider, but it seems that they are blowing things out of proportion. Ant Group’s IPO delay and the new restrictions are noteworthy, but they shouldn’t impact its near-term performance.
Alibaba needs to assess the situation with Ant Group and its regulatory troubles. Apart from that, its core and non-core businesses are doing incredibly well, and its stock is trading at significantly lower than mean estimates. Therefore, it’s best to grab BABA stock at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.