The direction of Alibaba (NYSE:BABA) stock is hard for investors to get a handle on. On the one hand, Alibaba group has access to the largest consumer base in the world. On the other, Alibaba group operates in a company that is trying to transition its emerging economy to rely more heavily on an aging consumer base and a workforce that is shrinking. Both factors are causing concern about consumer consumption.
Retail growth in China slowed in August to 7.5%, down from 7.6% in July. But the larger story was that the July number was down significantly from the 9.8% recorded in June. Instead, it was much closer to the 7.2% number recorded in April.
But investors are largely shrugging that decline off. BABA stock is up nearly 35% for the year. But the growth is less impressive when measured on a year-over-year basis. Alibaba stock benefits from being sponsored by high-quality U.S. mutual funds, including the Fidelity OTC Portfolio (MUTF:FOCPX) and the Miller Opportunity Trust (MUTF:LGOAX).
Alibaba Is Still a Growing Company
Despite the recent departure of founder and longtime CEO, Jack Ma, Alibaba is in good hands and poised for continued growth. Recently, Alibaba announced a partnership with Douyin, the Chinese version of the social media app TikTok. As Wayne Duggan of InvestorPlace reported, Douyin has approximately 320 million daily active users as of July. To put that number in perspective, the entire population of the United States is roughly 327 million.
Douyin is making plans to monetize its platform by integrating external shopping links. These links would connect consumers directly to products listed on two of Alibaba’s e-commerce platforms, Taobao and Tmall.
“[Douyin] can be strong weapon for e-commerce, especially for Alibaba Group and Tencent (OTCMKTS:TCEHY), which want to reach to younger consumers and those living in smaller cities,” Lu Zhenwang, CEO of Wanqing Consultancy, told the South China Morning Post last year.
BABA Is Looking a Lot Like AMZN
Another reason for investor optimism is that Alibaba has moved beyond its core e-commerce business (which has been showing some softness). In fact, Alibaba group is starting to look a lot like Amazon (NASDAQ:AMZN).
Alibaba has diversified into cloud computing, food delivery, and digital and media entertainment. On that front, the company recently signed a licensing agreement with Buena Vista International, a Walt Disney (NYSE:DIS) company. This deal will give Alibaba access to a large amount of Disney content.
The Trade War Is Factored into BABA Stock…For Now
Many bullish analysts feel strongly that any effect from the ongoing trade war is largely factored into BABA stock. However, in recent months, BABA stock is facing resistance at a key technical level.
In the last 12 months, BABA stock is up just under 9%. And it is currently having difficulty breaking through a level of resistance at $180 per share. As of this writing, the stock pushed through the $180 mark on Friday, September 20, but had already fallen below it in Monday trading.
What’s Next for Alibaba Stock?
Rumors of a crash in the Chinese economy have been around for 20 years. Each time, China has managed to defy expectations. So why should this time be any different?
One constant throughout those 20 years was China’s trade imbalance with the U.S. This imbalance allowed companies like Alibaba to thrive. The trade war threatens China’s consumer base at a time when it can ill afford to have that base pull back on consuming.
Most economists believe the trade war will end. When it does, BABA, like many growth stocks, should stand to be a big winner. But for BABA investors, exactly when a trade agreement will be reached is becoming harder to forecast. If the trade war drags on for any length of time, BABA stock could have further to fall.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
