It has been about a month since Alibaba (BABA) pulled off the biggest IPO in history, raising more than $25 billion. Yet the company has not escaped the wrenching correction in the equities markets. So far, Alibaba stock is off 10% from its high.
But this could be a nice entry point for investors interested in Alibaba stock. The fact is that BABA stock should benefit from strong long-term trends in its businesses, such as its ecommerce marketplaces, the cloud and payments.
There may also be a nice short-term boost from the expiration of the quiet period — which comes on October 29.
At that point, Alibaba’s underwriters — including Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS) and Citigroup (C) — will be able to publish their analyst ratings.
So let’s take a deeper look at all things Alibaba.
Catalysts for Alibaba Stock
First of all, BABA stock stands to benefit from a move into mobile search. To this end, the company recently entered an agreement with Quixey, which is a top player in the space. The company’s technology will be embedded in Alibaba’s YunOS mobile operating system, helping to discover apps and access content.
Alibaba also launched Baichuan, which allows companies to build mobile apps. A key feature will be integration with the various businesses like Taobao Marketplace, Tmall.com and Alipay Wallet. By doing this, Alibaba should further gain ground in mobile and also improve its valuable partner ecosystem.
The cloud should be another nice driver for Alibaba stock, as the company adds to its 1.4 million cloud customers. At this week’s AliCloud conference, the company announced deals with mega customers like Royal Philips and several Chinese local governmental organizations. The deals highlight that Alibaba has the heft to provide secure, mission-critical services. The company is also going to integrate YunOS into its cloud platform, which should help ramp growth.
And the other catalyst for Alibaba stock: the payments service, which is now called Ant Financial. Some of the recently added services include money market funds for consumers, private banking, micro loans for merchants and a mobile app. Ant Financial is already the largest player in China, handling more than 80 million transactions per day.
Now while all these long-term initiatives are compelling, investors should also benefit in the near term. As noted, the quiet period will soon expire and it seems like a good bet that Alibaba’s underwriters will publish bullish reports. This is generally the case for high-profile IPOs. And yes, Alibaba has lots to be bullish about.
In fact, some Wall Street analysts have already put out positive reports. Just look at UBS’s (UBS) Erica Poon Werkun, who has a $100 price target on Alibaba stock. She believes the core e-commerce business should continue to grow at a nice clip and that the company’s aggressive investments and acquisitions look promising, especially in mobile.
For the most part, when it comes to playing IPOs, it is usually to wait to pick up shares. If you adopted that strategy with Alibaba stock, you made a wise decision. With the recent pullback, the prospects for a profitable trade look pretty good right now.
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Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.