If there were any one company that represents the Chinese e-commerce miracle, it has to be Alibaba (NYSE:BABA). Like an amazing combination of Amazon (NASDAQ:AMZN), PayPal (NASDAQ:PYPL), and several other companies rolled into one massive conglomerate, Alibaba has delivered Chinese consumers to goods the world over. Yet as impressive a run as it's already delivered, it still seeks to gain ground. Those moves are not met with universal success and acclaim, which has potential investors watching closely.
Reversals and Setbacks
Recent trading hasn't done Alibaba any real favors. Its recent move to launch an IPO for Ant Group—the force behind the popular Chinese mobile payments system Alipay—was met with roadblocks after the Chinese government summoned the company's executives to answer for potential challenges it poses to the state's own banking system.
The IPO was set to be the single biggest one the Chinese market had ever seen, drawing investors from around the world to join in on an event that was poised to generate $34 billion in proceeds. Reports noted that bids exceeded the value of available shares by a factor of 870 times over.
As a result of the delayed IPO, which may be permanently delayed now depending on how the Chinese government responds, Alibaba's shares fell more than 8% at one point, though signs of a comeback are already in progress. As of this writing, the company is nearly five points above yesterday's closing figure, though still well off the closing price on Monday. Reports suggest that Jack Ma himself took a loss of over $3 billion as a result.
Analysts Are Less Concerned
While this might seem like a cataclysm, our latest research suggests that the analyst community is much less concerned. Alibaba currently stands on our list of “most-upgraded stocks”, and has a consensus rating of “buy.” As it turns out, though, that's a pretty substantial understatement of the company's outlook.
For the last six months, the company's ratio of “buy” to “any other rating” has been a minimum of 25:1. Right now, the company stands at one “hold”, 26 “buy” and one “strong buy.” Six months ago, it was 24 “buy” and one “strong buy”, with no one suggesting “hold” or “sell.” No one has had a “sell” rating on Alibaba in six months, as far as our research measures.
What's more, the price target has been trending upward for that same time span, going from $244.57 six months ago to $301.79 today. Hiked price targets and reiterations of “buy” ratings follow this company like a shadow in the early evening.
The Incredible Power of Diversification and One Gigantic Market
It's one thing for Alibaba to control an impressive e-commerce marketplace. The Chinese took to online shopping at a rate that made American shoppers look like a nation of Scrooges by comparison. It's entirely another, meanwhile, that Alibaba—through Ant Group, or Ant Financial as it was known—controls a mobile payments mechanism that can be used to shop through Alibaba as well. In fact, for several years, there was a maxim that expressed Alibaba's mobile payments system, Alipay, and its position in the market as compared to its closest competitor WeChat Pay. The maxim: “WeChat Pay for pennies, Alipay for big bucks.” Alipay was regarded as the means by which people made major purchases, while WeChat Pay handled simpler, common transactions with lower value. That kind of cachet likely helped make Alipay the more appealing option, especially to upwardly mobile online shoppers. Mobile payments themselves, meanwhile, likely appealed to the Chinese consumer, who—as some reports suggested—was culturally inclined against debt and eschewed credit cards. Mobile payments, meanwhile, were basically just electronic cash, and that did just fine.
There's one final point that gives Alibaba a tremendous edge: the sheer scope of its market. China, at last report, has a little over four times the population of the United States. While the United States consumer generally spends more—even with its massive population, China is still attempting to become the world's number one market—there's little doubt the Chinese are gaining. With Alibaba holding a hefty chunk of that market, it's no surprise it's as large and powerful as it is.
Buying in on Alibaba, therefore, might be a nice hedge plan. The leading company in a major market in a growing economic sector could be a real draw for investors, and even with the Chinese government stepping in to restrain its growth somewhat, it's likely to continue making sales and generating profit.
Companies in This Article:
