Alibaba Group Holding (NASDAQ: BABA) is garnering plenty of attention for its performance in the first half of 2017. The stock began the year around the $90 level and is currently priced at $124.
If you missed the “BABA boat”, don’t fret. The water ahead is clear and calm. There is plenty of room for this company to grow. Alibaba is presenting itself as a star that will continue to shine bright in the months and years ahead.
Alibaba’s Business
Alibaba is an e-commerce company that provides Internet and mobile marketplaces for retail and wholesale transactions. It also provides cloud computing services, and is regularly expanding its business with new ventures.
The company’s is best known for its Taobao Marketplace. Founded in 2003, Taobao is China’s premier e-commerce site. It is best thought of as a hybrid between Amazon and eBay.
China’s E-commerce Titan
Alibaba’s three primary e-commerce platforms of Taobao, Alibaba and Tmall have enjoyed sales growth of an incredible 54 percent across the first quarter of 2017. These platforms have nearly 500 million active monthly users.
All in all, China’s e-commerce sales eclipsed the $900 billion mark in 2016. Alibaba’s share of this market continues to grow as time progresses. At the moment, the company handles a whopping 80 percent of the country’s e-commerce transactions.
E-commerce is especially popular in China, comprising 18 percent of the nation’s retail sales. As a point of comparison, e-commerce sales represent 12 percent of the retail sales in the United States.
It is anticipated that China’s online sales will skyrocket 20 percent across the next four years. At that point in time, Chinese citizens will likely spend more on online purchases than the rest of the world’s citizens combined. This means Alibaba has plenty of room to grow.
Hop on the Alibaba Train Now
Wall Street analysts are infatuated by this Chinese e-commerce power player for good reason. Analysts’ consensus revenue estimates for 2018 have soared $730 million higher based on the company’s recent earnings. Year on year growth estimates are a robust 32 percent.
The company has enjoyed incredibly strong growth in recent quarters that rival the growth experienced in the immediate aftermath of its initial public offering (IPO). Analysts are impressed by the fact that about 45 percent of the Alibaba’s recent growth is organic in nature.
Alibaba has consistently beat internal growth expectations by a solid margin. Add in the fact that the company continues to expand beyond Chinese e-commerce into cloud services, digital media and international retail, and it is easy to see why so many analysts are bullish on this money-making machine.
In fact, the company’s ventures beyond Chinese e-commerce account for 20 percent of its revenue. This is an excellent sign, making it quite clear that Alibaba is diversifying its business offerings rather than putting all its eggs in the Chinese e-commerce market.
Rob Sanderson, an analyst with MKM, is so bullish on Alibaba that he has set a $155 price target for the stock. Sanderson believes Alibaba will continue to expand its advertisement load, spurring revenue growth to new levels in the near future.
Revenue spiked an astonishing 60 percent in the first three months of 2017 due to a massive uptick in Chinese users. The average customer’s yearly spending on the e-commerce giant’s platforms has consistently increased by about one-third.
Are There any Chinks in the Armor?
The most optimistic Alibaba analysts think the company can outperform Amazon. It appears as though there are few fallibilities in the company’s business model. However, the potential flaws with Alibaba must be highlighted to provide investors with a comprehensive understanding of this high-flying stock.
One of the few caveats with Alibaba is context. The core of the company’s business is rooted in the incredibly volatile Chinese market. Investors have seen the Chinese market collapse in the past. It usually takes quite a while to rebound from a significant market downturn, even for superstar companies like Alibaba.
It is also worth noting that the average yearly return of Alibaba is not as impressive as some would like prospective investors to believe. Consider the fact that the company’s average annual return was a mere 1.2 percent between 2014 and 2016.
Sure, the stock has had its fair share of surges, yet these spikes should be tempered by the fact that its annual return is barely above one percent. There is no doubt this is a highly volatile stock. If you are willing to ride the roller coaster, hop on for the ride. Don’t panic if it dips. Hold on for the long-term, and you will make money as an Alibaba shareholder.
Regards,
Ethan Warrick
Editor
Wealth Authority
