Alibaba Group Holding (NASDAQ:BABA) is defying the market downturn in the best possible way, with blowout earnings. Last week, BABA stock topped out just below $180 per share, a market cap of $453 billion, after the company announced earnings.
Source: Charles Chan Via Flickr
Last quarter, BABA earnings came in at $1.28 per share, on revenue of $13.9 billion, and highlighted $1.15 billion in cloud revenue. That’s revenue growth of 51% year-over-year for those scoring at home.
Analysts had been expecting earnings of 98 cents per share on revenue of $13.42 billion. The shares had been falling early in the month, with traders betting the trade war would begin to bite. And despite strong earnings and management showing that BABA has little to fear from the trade war, Alibaba stock has fallen again to just above $160.
However, I don’t believe this changes the underlying narrative on BABA stock. This is still a long-term growth story of company largely immune to trade tensions — even if the stock itself isn’t always.
What Trade War?
The report highlighted how despite all of the talk, many companies on both sides of the Pacific just aren’t being heavily hit by the trade war. For now at least, it’s business as usual.
The Alibaba report noted that the company has now enabled delivery of Starbucks (NASDAQ:SBUX) products from 2,100 stores in China and helped drive new Starbucks Rewards memberships through its online stores. Starbucks is facing new competition from Blackrock (NYSE:BLK) financed Luckin Coffee, which is preparing to raise $500 million to expand its own network of over 2,000 kiosks. If consumers in China were taking the trade talk seriously, they might be abandoning the American brand, which is easy to do.
Why Alibaba Matters
The New York Times talked about the slowing growth of Alibaba but that’s a function of big numbers being harder to move than smaller ones.
Analysts are now expecting Alibaba to achieve sales of $54.5 billion during the 2020 fiscal year, and earnings of $6.56 per share, which means the current stock price is just 8.2 times sales and 26.7 times next year’s earnings, both modest for a high-growth company.
Alibaba is increasingly a proxy for the global Chinese middle class, its shows now following Chinese overseas through a deal with Netflix (NASDAQ:NFLX). China’s problems are increasingly First World problems with Alibaba founder Jack Ma, now executive chairman, as spokesman. He’s pushing a 1950s “Organization Man” view of the world, telling people to work 72-hour weeks with his mantra of “996.” He recently made even more controversial comments as an inappropriate play on this idea.
Alibaba is also a bet on the power of the cloud to change the world’s economic geography. Unlike Amazon (NASDAQ:AMZN), which mainly re-sells cloud infrastructure, or Microsoft (NASDAQ:MSFT), which sells business applications from clients, Alibaba is focused on selling its own trade applications, and pushing its own payment network, Alipay, through global alliances.
Alibaba is also selling its brand, and this may be the most potent threat to American power, even more important than China’s military or its “Belt and Road” initiative. Alibaba is now opening its AliExpress market to sell goods from outside China, after Amazon shuttered its Chinese store.
The Alibaba brand is now worth $131 billion according to Brandz, second only to Amazon, which has a value of $313 billion. By way of contrast rival JD.Com (NASDAQ:JD) is said to be worth just $20 billion.
The Bottom Line for BABA Stock
I got off the Alibaba train in February, with the stock at $167 per share. It may be time to climb back on board despite the recent volatility.
Certainly, China has problems, especially debt problems. But the U.S. also has debt problems. World trade is not declining despite the efforts of global leaders. Alibaba and Amazon look set to be prime beneficiaries.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.
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