Alibaba Stock (BABA): Should I Buy It Now?

By Amit Chowdhry ● May 23, 2020
  • Should you buy Alibaba Group Holding Ltd (NYSE: BABA and HKEX: 9988) stock now? Here is some information to help you decide.

Alibaba Group Holding Ltd (NYSE: BABA and HKEX: 9988) — the Chinese multinational technology company that specializes in e-commerce and technology — has had a rollercoaster of a year in terms of the stock price. The company’s stock price is down nearly 6% year-to-date, but it is up over 25% over the last year.

Alibaba recently announced its financial results for the quarter and fiscal year ended March 31, 2020. For the quarter ended March 31, 2020, revenue was RMB114,314 million ($16.14 billion), an increase of 22% year-over-year. And the annual active consumers on its China retail marketplaces hit 726 million, an increase of 15 million from the 12-month period ended December 2019. Mobile MAUs on the China retail marketplaces hit 846 million in March 2020 — which is an increase of 22 million over December 2019.

The income from operations was RMB7,131 million ($1.007 billion), a decrease of 19% year-over-year, primarily due to the impact of the COVID-19 pandemic. And Adjusted EBITDA, a non-GAAP measurement, increased 1% year-over-year to RMB25,440 million ($3.593 billion).

For the fiscal year ended March 31, 2020, revenue was RMB509,711 million ($71.985 billion), an increase of 35% year-over-year. And income from operations was RMB91,430 million ($12.912 million), an increase of 60% year-over-year.

One of the major milestones for the company is that the consumer commerce businesses of the Alibaba Digital Economy — mainly comprised of our China retail marketplaces, international retail marketplaces, and local consumer services — reached RMB7,053 billion (US$1 trillion) of GMV in the twelve months ended March 31, 2020.

“Alibaba achieved the historic milestone of US$1 trillion in GMV across our digital economy this fiscal year,” said Daniel Zhang, Chairman and Chief Executive Officer of Alibaba Group. “Our overall business continued to experience strong growth, with a total annual active consumer base of 960 million globally, despite concluding the fiscal year with a quarter impacted by the economic effects of the COVID-19 pandemic. The pandemic has fundamentally altered consumer behavior and enterprise operations, making digital adoption and transformation a necessity. We are well positioned and prepared to help large and small businesses across a wide spectrum of industries achieve the digital transformation they need to survive this difficult period and eventually prevail in the new normal. By focusing on the long term and investing in value creation for our consumers and business customers, we believe we will emerge from this crisis stronger and be ready to capture more growth in the future.”

$1.4 Billion Investment In AI And IoT

Alibaba Group Holding Ltd (NYSE: BABA and HKEX: 9988) recently announced it is investing 10 billion yuan (about $1.4 billion) in artificial intelligence and the Internet of Things technology. The Tmall Genie smart speaker will benefit from the investment, which had launched in 2017. That device has been compared to Amazon Echo smart speakers.

The speakers that Alibaba developed are able to play music and provide weather details. There are several models of smart speakers. And the company launched its latest model earlier this month with a 10-inch screen and a price of $77.28.

Last year, Alibaba AI Labs also announced the AliGenie smart assistant — which is the voice of the Tmall Genie speakers. And AliGenie was integrated into over 660 IoT platforms. Now the voice assistant is used on nearly 200 million devices.

Over the last four quarters, Alibaba had spent nearly $6 billion on research and development. So putting $1.4 billion on a single project is a significant investment. And this investment will be immediately made in the calendar year 2020, meaning it is not a long-term plan and there will be immediate effects.

Alibaba is going to pursue the research through business ventures like the Alibaba Cloud platform and research hubs such as the DAMO Academy. Plus the effort includes natural language processing, personalized user experiences, and advanced user interface development — all through the use of technologies like edge computing, smart speakers, and smart screen devices.

“By tapping into Alibaba’s diverse ecosystem and cutting-edge technology, we are committed to bringing in more unique experiences to our Tmall Genie users,” said Alibaba speaker development general manager Ku Wei. “We are also partnering with brands to offer our leading AIoT technology, design ideas and go-to-market advice, so they can be empowered to explore opportunities in the AIoT era, and more smart products can be rolled out to the market to enlighten consumers’ daily life.”

Should You Buy Alibaba Group Holding Ltd (NYSE: BABA and HKEX: 9988) Now?

Based on the reports I have been reading, 100% of analysts are saying buy, 0% of analysts are saying hold, and 0% are saying sell. And in an analyst consensus, 19 are saying strong buy, 27 are saying buy, 0 are saying neutral, 1 is saying sell, and 0 is saying strong sell.

Case From The Bulls

The bulls are saying that Alibaba’s China marketplaces hit about 711 million active buyers as of December 2019, which is about half of the population in China and they are expecting a long runway of user growth in the coming years. Plus Alibaba is expected to benefit from the ongoing shift of China’s digital commerce market from C2C to B2C as Tmall will be able to drive organic user traffic from Taobao mobile and help to better monetize transactions.

Case From The Bears

The bears are saying that expansion of other China digital commerce players such as Pinduoduo and JD.com could slow Alibaba’s growth aspirations in certain product categories. And Alibaba has invested in businesses like China, which may not enhance its network effect. This could divert management’s attention from the core marketplaces and other business segments. Expanding into other regions beyond Southeast Asia could cause obstacles due to competing local marketplaces.

Disclosure: I own a small number of Alibaba Group Holding Ltd (NYSE: BABA) shares. I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.