Alibaba (NYSE:BABA): Is This a $200 Stock?

Alibaba stockShortly after Monday’s stock market crash in China, Alibaba Group Holding Limited’s (NYSE:BABA) stock price plunged. At one point it dropped to as low as $58.00, falling below its initial public offering (IPO) price of $68.00 for the first time since it went public. Investors, however, should not lose faith in the e-commerce giant. Its stock price might not bounce back overnight, but the company has a dominant position in its business and tremendous growth potential that could reward investors in the long term.

If You’re Thinking About Selling Alibaba Stock, You Need to Read This

Well, if you bought Alibaba, it looks like you are not going to get rich overnight. In the short term, the company’s stock price is likely to see some headwinds. Next month, the company would face the expiration of a big lock-up period, when large investors such as Japan’s SoftBank, as well as certain employees, will be allowed to sell stock. The huge amount of shares that might enter the market could have negative effects on Alibaba’s stock price.

Let’s not forget Alibaba’s dominant position in China’s online shopping marketplace. By the end of 2014, Alibaba’s Taobao.com captured 95% market share of China’s customer-to-customer (C2C) business and its Tmall.com captured 61% market share of China’s business-to-consumer (B2C). (Source: Statista, last accessed July 21, 2015.)

Moreover, despite being the king of the hill, Alibaba still managed to grow its business at impressive rates. In the most recent quarter, the company’s gross merchandize volume (GMV) in China retail marketplaces surged 34% year-over-year to $109 billion. Alibaba’s revenue also increased, by 28% year-over-year to $3.3 billion.

Alibaba also managed to monetize the shift of consumers from desktops to smartphones. In the second quarter of 2015, the company had a whopping 307 million monthly active users (MAUs), and 55% of its GMV came from mobile devices. Mobile GMV increased 125% year-over-year to $60.0 billion. Note that this was the first time for Alibaba’s mobile revenue to exceed desktop revenue in China retail marketplaces. (Source: Alibaba, last accessed August 27, 2015.)

The company’s competitive advantage comes not only from its enormous customer base, but also from its efficient logistics system. Over the past several years, the company has built strategic partnerships with logistics companies in warehousing, transportation, courier services, and pick-up stations. In 41 major cities, consumers can enjoy next-day delivery systems, and the number would be increased to 50 by the end of 2015.

The company also launched a same-day delivery of groceries. In Beijing, grocery sales skyrocketed 740% year-over-year and 90% of orders came from mobile devices. Through the recent partnership with Suning Commerce Group Ltd, consumers in more than 150 cities will be able to enjoy two-hour delivery services for home appliances and consumer electronics.

The list goes on and on. It looks like Jack Ma’s empire is still growing with strong momentum.

Counterfeit Products to Bring Down Alibaba?

There have been concerns about counterfeit goods that are sold on Taobao.com, Alibaba’s e-commerce platform. In the past, several Western luxury bands have sued the e-commerce giant for having counterfeit goods on their platform.

Well, here’s the thing. Counterfeit goods are not just sold on Taobao, they are sold in other places too. Selling counterfeit products online surely is convenient, but also leaves a transaction record that could be traced back to the seller. Moreover, these lawsuits have yet to cause any damage to Alibaba. The owner of the “Gucci” brand sued Alibaba for hosting counterfeit goods on its web site. Alibaba said it would fight the case and called the suit “baseless” and “wasteful litigation.” Last July, the same luxury brand sued Alibaba for hosting counterfeit goods before withdrawing the claims two weeks later.

Alibaba has been making strides to solve the problem. In April, the company introduced a new system called the Good Faith Takedown Mechanism. Most recently, it sped up the process of reviewing fake goods complaints. Under the new process, complaints of fake goods would be reviewed in one to three working days instead of the previous five to seven working days.

In addition, Alibaba has introduced new technology to ensure authenticity in the marketplace. The company unveiled new, hard-to-copy symbols to be used on product labels. The symbols are similar to QR codes and are unique to each product. Brands like “L’Oreal” and “Ferrero” have already started using the technology on Alibaba’s marketplaces. (Source: Wired.com, last accessed August 27, 2015.)

So, Should You Invest in Alibaba?

After taking a sharp dip in early Monday, Alibaba’s stock price recovered. Right now it trades at $70.88 a share. However, due to the upcoming expiration of the lock-up period, more shares might enter the market and tame the company’s share price. Moreover, the roller coaster ride in China’s stock market could bring further volatility to this Chinese ADR. For the long term, however, the company’s outlook remains solid. For those that are interested in profiting from the booming middle class in China, in the long run, Alibaba represents a great opportunity.

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