Could This Send Alibaba Stock to $100?
Alibaba Group Holdings Limited (NYSE:BABA) made waves this Tuesday as the e-commerce giant announced it will be opening offices in three European Union countries in the next few months. While the news made barely a blip in the media, I see it has a potentially huge catalyst for BABA stock. Here’s why.
Although the Alibaba stock price has rebounded impressively since its late-September low of $57.39, the future of BABA stock remains significantly in jeopardy as fears of increased competition and financial issues continue to haunt the Chinese company.
Having seen its market value nosedive by more than $117 billion since November of 2014, it’s no wonder that the company’s executives are focusing on big moves.
Alibaba announced it will be opening offices in Italy, France, and Germany, as well as further expanding its U.S. presence in an effort to bolster growth and provide psychological reassurance to its skittish shareholders and market analysts alike. (Source: “Alibaba to Open Offices in Europe as U.S. Expansion Continues,” Bloomberg, October 13, 2015.)
But will this be enough to provide uplift for a company battered by the increasingly volatile global economic context?
The answer is contingent upon a host of factors. Unfortunately for Alibaba, they aren’t all within its ability to control. Luckily, the company is unwilling to simply dig in and wait for things to turn around; Alibaba is taking the offensive in its international drive.
Will a Cooling Economy Hit BABA Stock?
As China’s previously red-hot economy continues to slow down, Alibaba has clearly decided to maximize its global aspirations and reassure investors it can thrive. Singles’ Day, the largest shopping event in the Chinese calendar year, is just around the corner, and the company is taking bold steps to attract as many buyers as possible to satisfy the demands of a burgeoning Chinese middle class.
It should be noted that it was Alibaba itself that invented the November 11 holiday, which is essentially an antithesis to Valentine’s Day.
Data shows that Singles’ Day really is a massive income generator for Alibaba. Following its inception in 2009, with massive promotions and limited-time deals, the company has seen impressive inroads in replicating the holiday’s success in other countries.
To put it all into perspective, more than $9.0 billion in sales went through Alibaba on Singles’ Day last year. (Source: “Alibaba Reports $9 Billion in Singles’ Day Sales,” Reuters, November 11, 2014.) With this year’s aggressive international expansion of the event, the number is likely to rise sharply.
The success or failure of this forecast will be closely monitored by shareholders and analysts alike, so it’s no wonder that Alibaba is pouring as much of its resources as it can into global expansion.
Can Alibaba Pull Off an International Expansion?
The strategy of European and U.S. expansion is promising, but Alibaba will have some pretty serious negative market sentiments to overcome.
Bearishness towards big-ticket Chinese stocks has been setting in as of late, with North American shareholders growing increasingly worried about the negative economic data coming out of China. It was, after all, only a few months ago that the Middle Kingdom’s stock market stood at what appeared to be the brink of collapse.
And then there is the issue of a broader global economic slowdown to consider. With slowing growth in emerging markets, slumping commodity prices, and stock market volatility, it’s no wonder that investors are less than enthusiastic about betting big on a Chinese e-commerce company at the moment.
Alibaba will have to do everything in its power to dissuade both current and potential investors that its position is weak. Anticipating a surge in demand for higher-quality products the company has struck deals with large name brands such as Apple Inc. (NASDAWQ:AAPL) and L’Oreal S.A. (EPA:OR) to carry their lines, and plans for many other such agreements are in the pipeline. (Source: “Alibaba, JD.com Could Benefit From Doubling of China Luxury Spending,” Bloomberg, October 6, 2015.)
If the company can pull it off, it will be a huge catalyst for Alibaba stock.
The Bottom Line for Alibaba Stock
If Alibaba can successfully steer this latest international expansion into laying the foundation for a truly global e-commerce infrastructure, then it will be well on its way to rebounding its damaged reputation and BABA stock price. With a solid strategy focused on global ambitions and a record of being able to quickly scale up what was just a small-scale artificial holiday only a few years ago, I remain bullish on Alibaba’s ability to stabilize its fortunes, even in this volatile global economy.