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What's Happening With Alibaba (BABA)

Following on from our update on March 13th regarding a buy position for Alibaba, we will revisit the stock given the recent decline.

Firstly, we remain with our original bias for long position on BABA, and as per our strategy on March 13th, have cost averaged our position down.

Key facts:
  • Revenue since 2016: +750%

  • Net Income since 2016: -11%

  • Share Price: $82.95 (the same as 2016)

  • PEG: 5.5 (overvalued)

Things to note:
  • Wall Street rates a strong buy, with price targets $150 - $220

  • Morgan Stanley value Alibaba and its proposed subsidiaries at $530Bn, $200 per share

  • Share price is down 74% from 2020 highs

  • Short Float: 2% of outstanding shares

The decline in share price we believe is a result of slower growth forecasts and Chinese regulations surrounding tech companies like Alibaba who faces scrutiny over so called 'monopoly' in E-commerce. However, the loss of institutional interest in the past 18months has given the opportunity to buy BABA at 2016 prices with revenue growth +750% since 2016, and at a 74% discount since 2021.

Growth forecasts for 2023/2024 have slowed in relative terms but remain positive, likely contributing to the recent downturn in share prices as the market absorbs this information. With no dividend payout, investments into BABA are driven purely on growth factors rather than income.

None the less, Alibaba remains a global leader in e-commerce, eyeing global expansion to tap into new markets and reach a wider customer base. The company has been making investments in other countries, establishing partnerships with local retailers, and actively promoting cross-border trade through platforms like AliExpress.

Furthermore, Alibaba Cloud, the company's cloud computing division, is a significant growth driver. Alibaba aims to expand its cloud computing services both domestically and internationally, leveraging its expertise in areas such as big data analytics and artificial intelligence.

Our investment strategy remains the same, despite slower growth forecasts (still positive) we believe the stock could outperform in the coming 12 months with strong revenue growth, positive innovation outlook, market prices at 7 year lows and regulations in China appearing to be coming to a close.


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