Alibaba Stock Doesn’t Reflect Growth Potential
Since 2014, Alibaba Group Holdings Ltd. (NYSE:BABA) has struggled to maintain its promise on Wall Street. Alibaba stock reached a peak in November 2014, when it traded around $115.00 per share. However, even though China’s e-commerce giant’s fundamentals have only improved since nearly two years ago, the market has not translated this into a bullish run for Alibaba. However, it’s just a matter of time until that happens. Indeed, Alibaba is poised for a surge over the course of 2016.
The main reason for optimism in BABA stock is that Alibaba has seen strong growth despite its size. Alibaba simply keeps growing like a startup even though it is a giant. Alibaba is like Rocky Balboa and Apollo Creed all rolled into one. This is unusual. The pace of growth for a behemoth of Alibaba’s caliber is simply much higher than similarly sized companies.
Alibaba has a nearly 80% market share in China’s e-commerce business. (Source: “How Alibaba is Working Towards Establishing Itself in the U.S.?” Forbes, February 25, 2016.) Meanwhile, Alibaba added some 32% to its revenue year-over-year to $5.33 billion in the most recent quarter. Gross merchandise volume (GMV) rose 23% year-over-year, while it also saw annual active buyers on its e-commerce platform exceeding 400 million. (Source: “Alibaba Group Announces December Quarter 2015 Results,” Alibaba Group Holding Ltd, January 28, 2016.)
It’s not all about growth. BABA stock should be trading at a more bullish level because Alibaba has also charged a higher commission rate to sellers per transaction. The rate, also known as monetization rate, has increased to 2.98% year-over-year. This maximizes the results of the fast pace of user growth. Therefore, nobody should gasp upon learning that Alibaba has exceeded three trillion yuan ($476 billion) in the volume of transactions (aka GMV, gross merchandise volume) in its fiscal year ending at the end of March 2016. A year ago, GMV was 2.44 trillion yuan, representing an increase of some 23.0%.
In sum, Alibaba has tripled since 2012, when it first reached one trillion yuan. Alibaba can now afford to offer “quality” growth and expand domestic consumption in China. (Source: Alibaba annual transaction volumes cross 3 trillion yuan, but growth slows,” Reuters, March 21, 2016.) Executive Vice Chairman Joe Tsai explained that Alibaba’s growing GMV reflected China’s shift away from investment and export-led growth and toward consumption and services, with Alibaba “at the heart of this new economy.” (Source: Ibid.)
Maintaining the startup’s feeling, Alibaba is adapting to its evolution and changing the market at a brisk pace. Over 2015, Alibaba has stepped up efforts to bring producers and quality brands to its platform, especially where foreign imports are concerned. The “Rural Taobao” initiative has reached more than 12,000 of China’s 600,000 villages to introduce everyday items, enjoyed by the majority, to the country’s rural citizens. (Source: Ibid.)
In February, Alibaba disclosed it has a 5.6% stake in Groupon Inc (NASDAQ:GRPN). Moreover, it also has stakes in online retailer Jet.com and Uber rival Lyft Inc. (Source: “Groupon Soars Again, This Time After Alibaba’s 5.6% Stake,” Bloomberg, February 16, 2016.)
Groupon, in particular, is going to teach Alibaba some close-up lessons about the U.S. consumer market. Alibaba already has a platform for global online shoppers with AliExpress. However, it’s yet to take the main stage—or perhaps it’s not yet ready to offer a strong challenge to the likes of Amazon.com, Inc. (NASDAQ:AMZN).
Alibaba is already testing the Indian e-commerce market. The company plans to gain a foothold in India’s rising e-commerce phenomenon, growing at more than 50%. Alibaba has already invested in Paytm and Snapdeal to win market share in the growing Indian e-commerce segment. India’s e-commerce market could be worth 38.0 billion marks in 2016, a 67% surge over the 23.0 billion marks of 2015, according to the Associated Chambers of Commerce and Industry. (Source: “Alibaba All Set To Enter Indian Ecommerce Market By End of 2016; Govt. Promises ‘Full Support’,” Trak.in, March 21, 2016.)
Alibaba is considering a partnership with the Tata Group to challenge Amazon.com itself in India. (Source: “Alibaba may tie-up with Tata Group to enter Indian e-commerce space,” BGR, March 21, 2016.)
In short, Alibaba is growing faster than anyone could have expected, given its size. It already has what it needs to expand beyond China’s borders. Perhaps that is what most people are missing about Alibaba stock. China remains the focus, but Alibaba has already sent the market signals of its global ambitions.