Chinese e-commerce and cloud computing powerhouse Alibaba (NYSE:BABA) stock is off to a crackling start in 2021, rising more than 14% and posting better-than-expected earnings.
But there’s also a caution flag.
Beijing is taking a closer look these days at Alibaba as it evaluates the role of Big Tech and the influence it can have over the financial industry.
In December, China announced it would look to strengthen anti-monopoly rules against online platforms. President Xi Jinping said it’s one of his most important goals for 2021.
Such scrutiny is a concern for Alibaba investors. But while it threatens to put a damper on what should be another outstanding year for Alibaba stock, there’s also plenty of signs for optimism.
BABA Stock at a Glance
Alibaba reported earnings for its fiscal third quarter 2021 on Feb. 2. Revenue came in a $33.88 billion, which beat analysts’ expectations of $33.35 billion. It also marked a 37% year-over-year increase.
Earnings per share was also a beat, coming in at $3.38 versus analysts’ expectations of $3.25.
Cloud computing showed a 50% year-over-year increase, making for Alibaba’s first profitable quarter in that segment. E-commerce sales also remained strong as Alibaba added 22 million customers to its online retail marketplaces. Alibaba ended December 2020 with 902 million monthly active users and 779 million annual active customers.
CFO Maggie Wu said the company continues to improve as China rebounds from the novel coronavirus pandemic. As she told analysts in a conference call:
2020 was an unprecedented year. A year has passed since the pandemic started, and it continues to create uncertainties and disruptions to business globally. Given the Chinese government has taken effective measures to limit the spread of virus earlier, China’s economy saw a quick recovery, which, in turn, supported the solid growth recovery of our business.
Alibaba and Ant Group
Alibaba and other Chinese companies were already facing a threat from the U.S. through the holding Foreign Companies Accountable Act that was signed in the waning weeks of the Trump administration.
Now Alibaba has another threat from its own shores. In November, Beijing shocked investors by blocking the initial public offering of Ant Group, an Alibaba affiliate, just days before it was to go public.
Ant Group operates the well-known Alipay app in China, and is a growing power there in processing online payments. Ant also uses Alipay to offer other kinds of financial services, such as personal loans and insurance policies. To be sure, it is a direct threat to traditional banks in China.
The offering, which was valued at $34 billion, would have been the biggest stock debut in history. Instead, Chinese regulators blocked the IPO in November after summoning Alibaba founder Jack Ma to a meeting. Ma was under fire in state media for criticizing financial regulators who he said unnecessarily minimized risk. He also had some choice words for Chinese banks, according to an account in The New York Times.
Beijing now says that Ant doesn’t meet the regulatory and disclosure requirements of an IPO. It’s likely the offering will return down the line, but not necessarily in 2021. And when it does, the value is expected to be cut in half.
Losing out on the Ant IPO sent BABA stock down 8% in a single day. But it’s already recovered from that drop – and more.
The Bottom Line
Even without Ant Group, there’s a lot to like about Alibaba stock. The company is a powerhouse in e-commerce and cloud services, with revenue growth topping 30% consistently.
While it may be disappointing that BABA stock won’t be able to profit from the Ant Group IPO anytime soon, Alibaba remains a profit center for long-term growth.
China’s economy is growing by leaps and bounds, and Alibaba stock is certainly destined to follow it higher.
BABA stock has a “B” rating and a buy recommendation in my Portfolio Grader.
On the date of publication, Louis Navellier had a long position in BABA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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.