Alibaba Group - BABA

Since its record-breaking, $25 billion IPO in 2014 to September 5, 2019, BABA stock has returns roughly 100% versus the S&P 500’s 50% return.
— Source: Stockcharts
“To summarize, the vexing issues in the trade negotiations will resolve themselves, as the Chinese economy is already evolving to close the gap between the interests of the United States and China. This means in the future, there will be bigger Chinese domestic consumption, more foreign imports, continuing focus on enhanced IP protection, and further digitization of industries driven by the participation of the private sector. As we look at the evolution of the Chinese economy, Alibaba is on the right side of all of these issues. I cannot think of another company that is better equipped to drive these secular changes and participate in the ensuing long-term benefits.”
— BABA Exec Vice Chairman Joe Tsai, earnings call May 2019


Alibaba Group Holding Limited operates as a holding company. The Company provides internet infrastructure, e-commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide. BABA owns 1/3 of Ant Financial & Alipay, an enormous financial services company. The company operates Taobao Marketplace, a mobile commerce destination; Tmall, a third-party platform; Alibaba Health pharmaceutical e-commerce and consumer healthcare platforms; Alimama, a monetization platform;, an online wholesale marketplace;, an online wholesale marketplace; AliExpress, a retail marketplace; Lazada, an e-commerce platform; and Tmall Global, an import e-commerce platform. It also operates Lingshoutong, a digital sourcing platform; Cainiao Network logistic services platform;, a delivery and local services platform; Koubei, a restaurant and local services guide platform; and Fliggy, an online travel platform. In addition, the company offers pay-for-performance and display marketing services; and Taobao Ad Network and Exchange, a real-time bidding online marketing exchange. Further, it provides elastic computing, database, storage, virtualization network, large scale computing, security, and management and application, big data analytics, machine learning platform, and Internet of Things and other services for enterprises; and payment and escrow services; and movies, television series, variety shows, animations, and other video content. Additionally, the company operates Youku, an online video platform; UC Browser, a mobile browser; Alibaba Pictures and other content platforms that provide online videos, films, live events, news feeds, literature, music, and others; Amap, a mobile digital map, navigation, and real-time traffic information app; DingTalk, a business efficiency app; and Tmall Genie, an AI-powered smart speaker. The company was founded in 1999 and is based in Hangzhou, the People's Republic of China.

Alibaba Investor Day September 23/24, 2019 - click the image for the full PDF of slides

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Recent Earnings - September 2019

I’ll compare the June quarter to this quarter ending 9/30/19:

  • Total revenue growth +40% YOY versus +42% in June = slightly less but absolute great

  • Core commerce revenue growth + 40% versus +44% in June = slightly less but still absolute great

  • Cloud computing revenue growth +64% versus +66% in June = slightly less but still absolute great

  • Consumer division: 785 mobile MAU’s = 785 million versus 755 million = Better & great

  • Consumer division: 693 million annual active consumers versus 674 million = better and great

  • Profitability: $32.1B RMB Adjusted EBITA versos $34.6B = slightly less

  • Non-GAAP Free Cash Flow: +$4.3 billion versus $3.8B = better

  • Cash on balance sheet $32.913 billion versus $30.909 = better & impressive

  • Net cash provided by operating activities $6.621B versus $5.042B = better

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From a factor scoring perspective versus the other 199 brands in the brands index, here’s where BABA scores well:

  • 98% for 3 year sales growth

  • 79% for industry operating margins

  • 87% for a top quality measure - low debt to enterprise value

  • 97% for 1 year sales growth

  • 93% for high free cash flow

  • 87% for positive sales surprise last quarter

  • 71% for high cash to current market cap


At first glance, I do not see anything wrong with today’s earnings report. At a difficult time in China, the domestic consumption story remains the bright spot and Alibaba is the primary beneficiary when a rapidly developing economy with 1.4 billion people evolves from a manufacturing base to a domestic consumer base. This story is very early in its development and BABA is a must-own stock allocation for the consumer spending theme.

In my opinion, the opportunity BABA has is larger than Amazon’s. For now, U.S. brands will struggle to build new inroads in China which offers the most relevant Chinese brands an opportunity to cement their dominance in China and Asia. If Amazon, Apple, and Microsoft achieved the $1 trillion mega-brand status, Alibaba seems destined for that milestone as well. This makes BABA one of my favorite picks for a long-term portfolio and one with significant upside. Yes, there will be volatility along the way but the secular trend of Chinese brands dominating consumer spending categories and building strong ties with consumers is very early days. There’s significant innovation happening in China-tech and BABA is sure to be a leader across Cloud, Artificial Intelligence, E-Commerce, IOT, Financial Services, and Mobile Payments while offering a VC-like call-option given their investments in smaller companies around the world. BABA reported a strong second quarter and struck a bullish tone. Here’s some highlights.