BABA Stock: Why Long-Term Investors Will Be Glad They Bought

BABA stock
iStock.com/Dilok Klaisataporn

Alibaba Supercharging & Innovating Amid Trade War

The stock market is clearly fixated on the U.S.-China trade war, but I can guarantee that Alibaba Group Holding Ltd (NYSE:BABA) is not concerned with the constant barrage of daily news about whether a deal will surface or the two biggest economies are moving toward a decoupling.

And this points to why holders of BABA stock are going to be happy in the long run.

Simply look at what Alibaba has been doing since the trade war started last year.

BABA has been focusing steadily on ramping up its consumer segment, while at the same time accelerating the growth of its rapidly growing cloud solutions business and expanding its massive financial payments arm.

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Chart courtesy of StockCharts.com

Anyone invested in—or considering investing in—Alibaba stock needs to ignore the noise regarding China.

Despite what you may have been hearing, the country is continuing to grow its economy and drive consumer spending, which is expected to form the backbone of its future economy.

Ultimately, China wants to reduce its dependence on exports and imports. This goal, as you have seen, is being challenged by the trade war.

After recently listening to Alibaba’s “2019 Investor Day” presentation, I came away with a much more optimistic view of BABA stock and where it’s heading.

The focus of Alibaba will be powering up its already massive consumer segment base in China and other growth regions, such as India.

It’s a Great Time to Be a BABA Stockholder

For Alibaba Group Holding Ltd, it’s an opportune time to take advantage of the rapid growth in consumer spending in China.

The below chart shows the steady rise in consumer spending in China from 2010 to 2018. 

(Source: “China Consumer Spending,” Trading Economics, last accessed October 4, 2019.)

Alibaba is aggressively aiming for more than one billion annual active consumers and greater than RMB10.0 trillion ($1.4 trillion) in annual gross merchandise volume in China by the end of 2024.

There is no reason why the targets are not attainable, given the acceleration in consumer spending by Chinese consumers.

Alibaba currently has around 730 million annual active consumers in China and 130 million annual active consumers in other countries, so the target is within reach.

Consider that private consumption in China accounted for only 39.4% of the country’s nominal GDP in December 2018, well below the 70% or so stateside. (Source: “China Private Consumption: % of GDP,” CEIC,” last accessed October 4, 2019.)

Given the numbers, it’s not surprising that the Chinese government wants Chinese consumers to spend more. This will happen. It’s a matter of when, not if.

Analyst Take

In addition to operating in China, Alibaba Group Holding Ltd is aggressively expanding its presence in India, which opens up a market of another billion people and a rapidly rising middle class.

Alibaba stock is trading up 24.3% this year and up 10.2% over the past year, easily outperforming Amazon.com, Inc. (NASDAQ:AMZN) and the Nasdaq.

If Alibaba can come close to its goals, I’m pretty confident that those holding BABA stock will be happily rewarded in the long term.