Why Alibaba Stock Could Double in the Long Term


Alibaba Stock: Long-Term Bull Story Remains in Place

As we witnessed over the past few days, the market reacts extremely positively to any signs of an end to the trade war with China.

Whether there will be a near-term deal when President Donald Trump meets with President Xi Jinping in a few weeks is anyone’s guess.

The only certainty is that an escalation of the trade war is negative for both sides.

While U.S. technology stocks have retrenched, the selling has been much more prevalent on the Chinese Internet players—the majority of which are in bear territory.

One of my top picks in the China Internet space remains mega-cap Alibaba Group Holding Ltd (NYSE:BABA).

BABA stock displayed a bearish death cross in late August—a negative chart pattern in which the 50-day moving average breaks below the 200-day moving average.

Alibaba stock failed to hold chart support of $150.00 and sank to a 52-week low of $130.06 on October 30 before bouncing 18.45% to $154.36 on November 2.

Chart courtesy of StockCharts.com

Currently trading at 31% below its record high of $211.70, BABA stock is oversold and looking good for investors with a longer-term perspective.

The reality is that the trade war is crippling Chinese Internet stocks. However, it will not last forever and there will be a leg up after the current flushing.

It’s difficult to time a bottom, but my view is that investors might want to accumulate Alibaba stock on weakness since the long-term picture is intact.

Alibaba, under the direction of CEO Daniel Zhang, is building a solid company focused on e-commerce while increasing its presence in the key and lucrative cloud business.

BABA stock recently also suggested that it would be developing its own line of chips—a strategy pushed by the government to cut the country’s reliance on imported chips.

The chip contribution is likely years away, but it’s an intriguing move that will add to a massive e-commerce presence and what should be a critical cloud business.

Why the Third Quarter Offers Hope for BABA Stock

There were hits and misses with Alibaba’s third quarter.

While revenues surged 54% year-over-year to $12.4 billion, Alibaba cut its fiscal year 2018 revenue guidance to ¥375.0 billion to ¥383.0 billion ($54.4 billion to $55.6 billion), blaming the trade war.

The e-commerce business accounted for 85% of Alibaba’s revenues.

The exciting thing was that Alibaba increased its annual active consumers to a whopping 601 million versus 488 million a year earlier.

Moreover, Alibaba’s key mobile monthly average users (MAU) reached a staggering 666 million in the third quarter, up from 549 million a year earlier. (Source: “Alibaba Group Announces September Quarter 2018 Results,” Alibaba Group Holding Ltd, November 2, 2018.)

You cannot ignore the user growth at BABA especially as Chinese consumers become wealthier.

Another major positive I took from Alibaba’s third quarter was the impressive 90% revenue growth from the key cloud computing business. At $825.0 million, it is still a mere 6.65% of revenues, so there is a lot of potential ahead.

Analyst Take

I continue to be an Alibaba bull and view any major downside move as an aggressive opportunity.

BABA remains a top Internet stock that will only diversify and improve with time.

The next major event for Alibaba will be the infamous Singles’ Day on November 11, which saw sales of over $25.0 billion in 2017.