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Alibaba: Stock Is A Sleeping Dragon, Business Is A Monster

Dec. 06, 2018 9:25 AM ETAlibaba Group Holding Limited (BABA)51 Comments
Stefan Redlich profile picture
Stefan Redlich


  • Alibaba has rebounded from its lows but is still more than 25% short of its 52-week high.
  • While no one knows where the bottom actually is, the long-term investment case for Alibaba remains well and truly intact.
  • For patient and not-jittery investors, the current sell-off presents another buying opportunity.

Alibaba (NYSE:BABA) has started to recover from its recent firesale prices but is still a far cry away from its 52-week high. Ongoing uncertainty regarding the tariff situation leads to large daily ups and downs but the underlying business is stronger than ever.

Source: yahoo.com

Alibaba's stock is a sleeping dragon while Alibaba's business has long awakened and sooner or later the stock price will have to follow suit, with or without tariffs. At current prices Alibaba is a long-term buy for investors able to withstand selling the stock amid current tariff uncertainty.

What is going on at Alibaba?

Alibaba is a $424B stock but is trading on daily ups and downs of at least 3% in either direction during the final quarter of the year. It has recently reported another outstanding quarter with revenues growing by 54% Y/Y to $12.4B and an EPS of $1.40 shattering expectations by a whopping $0.33.

Source: Alibaba Investor Relations

This was the first quarter factoring in the full impact of the current tariffs and as such gives good insight into what is cooking under the hood. And before going into details the impact so far is limited with the most obvious fact being that Alibaba reduced its FY19 sales guidance between 4% and 6%.

The cloud segment clocked in another massive quarter with a 90% Y/Y revenue growth in Cloud Computing. Alibaba's core business segment "Core Commerce" meanwhile generated 56% revenue growth perfectly in line with overall growth of 54% as the very strong growth in Cloud is balanced out by "just" 20-24% growth in Digital Media and Entertainment and Innovation Initiatives and Others. The cloud segment alone, as fast as it is rising, still only accounts for 7% of quarterly sales but will quickly reach double-digit revenue share at that clip.


This article was written by

Stefan Redlich profile picture
I am working as a Business Analyst and Data Engineer in Germany and have started to build up a portfolio focused on Dividend Growth, both on the high and low-end yield spectrum. Primary focus is on Blue Chips with long-reaching dividend track records. I have been investing for 2 years and have been standing on the sidelines for way too long before. I love developing spreadsheets in Google and Excel to analyze financial performance and integrate these two sources with each other!Happy to connect on the various channels!

Analyst’s Disclosure: I am/we are long BABA, AMZN, JD, BZUN, HUYA, IQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (51)

Not sure what the market cap should be for baba, but it should be 2 times bigger than amazon at this moment based on business size and earnings.
mltrader1 profile picture
The problem with dragons is that if you get on their bad side, they eat you. This dragon has many an underwater investor in its belly. Wait till people realize that all Chinese IPOs, including BABA, have cooked their books in some way. I think BABA has a future but this dragon is yet to get its helping of yuppie guppie investor soup. I think you can make money anyway and Im all for people making money regardless if a company is fraudulent but make sure you have your stops in place to minimize sudden moves. I personally have a price target in the 90's.
The biggest danger to western investors is" BABA" VIE structure.

In a VIE structure the investors do not own equity interests in the operating company.
pebble16x profile picture
I've stayed out of the China vs USA arguments but there's one thing I'd like someone to tell me.

If all the dire things that some people think might happen to the USA as a result of actions from China should happen, what would happen to China as a result?

Mutual destruction perhaps???
You SA fans of BABA and everything Chinese continue to amaze me. I have no skin in this game, but I know the Chinese Communist Party continue to laugh at foolish US investors who buy their stocks. Would a 52 yro CEO like Jack Ma retire in the US, hell no unless he was ill. Take 90 minutes of your time and watch The China Hustle or watch an interview with Carson Block. All those WS investment bankers who took BABA public should be ashamed of themselves. The problem is the Chairman of the SEC is one of the lawyers who made it happen.
Doesn’t the risk justify the reward? Time will tell, no?
This trio makes up close to 40% of my portfolio. Bought JD huge on dip. Love the sleeping giants
If you have $1.000.000 and throw 100.000 on BABA, it is ok. You perfectly know you will lose these 100.000, right ?
g.dimit profile picture
This Company continues to Deliver good Numbers, Should the pessimistic view Change BABA, JD & TCEHY Will Exployed to the Upside.

Buy this TRIO for the long run. Could very easily be a nice addition for your future retirement.
I'm long all three. I'm sure you are on the right track.
InvestingIdeas profile picture
JD is my worst performing holding by a huge margin... I do like their balance sheet and what they are spending money on (automated warehouses/distribution centers as well as automated restaurants)
Stefan Redlich profile picture
Indeed, me too, the price certainly does not reflect the business strength at this moment, but that is a great opportunity to buy companies at deep value, an opportunity only this huge up-and-down volatility-driven swings can create in this environment. Really a sudden death situation.
pebble16x profile picture
Doglick: "BABA is probably the best pick."

I think AABA is better.
Your version of 'top quality' companies is questionable to me when you pick HUYA and IQ as examples... they may be one day but definitely no where near today.

But I do agree with you on BABA for sure. They are so underowned and undervalued it's unbelievable they are priced in 150s still when trade war, Huawei, Trump's temper, JD/PDD etc. has little impact on them, yet they just keep growing and making huge profits, investing in the right areas, good management and with 100% backing from the CCP... no one can compete with or catch them. Jack Ma, with his great rep in and outside China, has built almost an impenetrable moat and disrupter machine. Anyone who is bullish on China LONG TERM and especially on their middle class and consumerism, BABA is probably the best pick.
looking to buy in when touched $148. glad i auto sold it at $168 few days ago.. i toh i sold too early.
Today, BABA market cap is half of Amazon's, in four to five years time it will be vice-versa! Enjoy the ride!
InvestingIdeas profile picture
Seems unlikely, in 5 years AMZN will have 500b in revenue and be worth 1T+. I think they will be long term rivals, east vs west. (Microsoft vs Apple dynamic). Both will grow and dominate.
hard to tell when the trade war would be over.
kesslerblvd profile picture
yes, but the monster has yet to pay a single penny in dividends, and that must be a message in there somewhere
That it rather uses it cash to grow 50+ % a year?
pebble16x profile picture
kesslerblvd: "that must be a message in there somewhere"

No "diss" intended but if you're looking for dividend- income buy dividend-paying stocks.
If you're looking for capital growth look for companies that are more likely to provide it.
They're not the same.
Wait for the 140 level looking at charts it’s 140 to 165 back and forth during all the china China China
One would think that a trade war with China would increase the political risk to the VIE structure.

If the Chinese government really wanted to hurt the US, one of the easiest ways would be to undermine the VIE. Of course, that would mean the end to US investment in China, but angry countries have been known to take counterproductive steps.
Not just end of US investment. Almost all foreign investment.
pebble16x profile picture
If BABA, why not AABA???
Good job! Compelling reasons to buy $BABA but not sure due to the Chinese Economy trending down.
Stefan Redlich profile picture
Yeah, well, you will never get the bottom I believe and the current situation is really sudden death. Anything can happen any day sending stocks up or down 5% or more, impossible to predict anything here, that's why I can only focus on the not short-term future.
Alexandria85 profile picture
Question is when this sleeping demon will wake up, anytime soon?
When trade war is over lol
Stefan Redlich profile picture
True, waiting for how this Huawaei story develops.
Alexandria85 profile picture
Why is Huawei ? It’s related to Iran sanction. Not trade problem. Just bad timing. Trade will resolve
necto profile picture
all my money in china . - 31% from 250K $
You’re down 31%?
Stefan Redlich profile picture
Tough situation right now, hope you don't need any of that right now and today is truly horrific yet again even though I cannot support Huawei's actions.
gotta Diversify, I myself also have a huge part of my portfolio in FB and Alibaba. So you can also guess my year ain't going to well. I'm staying long on both names.
When all is said and done, the market and Baba will make a comeback. If you own it, hold it and if not, buy it.
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