The 10th of September was a day that some holders of Alibaba (NYSE:BABA) stock were dreading: Jack Ma, the company’s flamboyant co-founder and chairman for 20 years, finally stepped down from his position on his 55th birthday. He’ll continue to serve as as part of the 36-member Alibaba Partnership, but his influence at the company will be comparatively limited.
Today, Ma is worth an estimated $40 billion and Alibaba is a massive force in global e-commerce — not too shabby for a start-up that began in a tiny apartment in the late 1990’s.
With Ma’s departure, however, owners of Alibaba stock are left wondering whether CEO Daniel Zhang can keep the company’s momentum going amid recent internal challenges.
Hold On to Your BABA Stock
It’s tempting to panic in situations like this as markets don’t like uncertainty and change can be scary. I would recommend a calm mindset and a long-term view, however, as Alibaba Group remains a solid, stable company even as it navigates its transition in leadership.
Granted, Alibaba’s reputation was, to a certain extent, predicated upon the cult of personality that Ma instilled in BABA shareholders. A bit of a wild card, Ma made an appearance in a kung-fu film, showed up at a get-together dressed like Michael Jackson, and even sang at a large music festival. During interviews he spoke frankly and charmed practically everyone he came in contact with.
Along the way, Ma helped cement Alibaba’s place in history, as the company’s IPO in 2014 was and still remains the largest IPO in stock-market history — $25 billion in American currency. Moreover, Alibaba reportedly had three times the sales of American e-commerce rival Amazon (NASDAQ:AMZN) last year.
Thus, it’s easy to see the parallels between Alibaba stock and Amazon; just imagine the shock and alarm that AMZN shareholders would feel if Jeff Bezos stepped down. And yet, I have no doubt that any downward price action in Amazon stock would be temporary; the same could be said regarding BABA stock, in my estimation.
The Baton Is Passed
I don’t view this as Ma abandoning his company as much as him ushering Alibaba into a new phase of its development. The public might think of Zhang as a soft-spoken accountant, but Ma clearly thinks quite differently of Alibaba’s new leader:
[Zhang] has the logic and critical thinking skills of a super computer, a commitment to his vision, the courage to wholeheartedly dare to take on innovative business models and industries of the future.
The fact that Ma handpicked him and is prepared to bet his legacy on Zhang should be highly encouraging for long-term owners of BABA stock. Still, I can understand investors’ misgivings; the timing isn’t ideal as China and the United States remain mired in a trade war that’s taking a heavy toll on commerce and revenues in both nations.
BABA Still the World’s E-commerce Leader
Nevertheless, even with the tariff battle raging on, Alibaba remains dominant in the global e-commerce space. Consider, for example, that even in the midst of a trade war, Alibaba’s most recently reported earnings indicated a massive 51% increase in adjusted EPS compared to the same quarter a year prior. Not only that, but the report revealed that Alibaba’s sales jumped 37% compared to the same quarter last year, reaching $16.73 billion — no slowdown here, tariff war notwithstanding.
Given all of that, analysts are understandably optimistic concerning Alibaba’s growth prospects going forward. Indeed, they’re projecting the company’s EPS to increase by 16% in fiscal year 2020, followed by an additional 28% uptick in fiscal year 2021.
The Bottom Line on Alibaba Stock
My message to investors relates not only to BABA stock, but to the market at large: change doesn’t always have to be perceived as a bad thing. I, for one, am feeling confident about Alibaba’s future; Jack Ma’s leaving, but the company’s here to stay.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
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