40 billion of stock since 2020. Pinduoduo is baba ganoush recipe oven to squeeze Alibaba’s core business. The company is also losing share in cloud.
Why such extreme selloffs and extreme run-ups in the span of a few months? Because the market has no idea what it is doing with Alibaba shares. Many of the fund managers who own huge swaths of BABA stock don’t live in China. They cannot see the competitive dynamics of Alibaba’s business first hand. So instead of selling on business fundamentals, Alibaba shares swing wildly based on macroeconomic narratives.
60 range, and, in this article, I will try to provide a more nuanced view of the microeconomic issues facing Alibaba. These fundamental issues may shed more light on why insiders are selling. But, the totality of the selling requires further investigation. Alibaba’s Moat Is Deteriorating In my first article on Alibaba, I wrote that the company faces competitive threats from JD. Notice that Alibaba is keeping pace with JD. At first glance, this doesn’t look too bad.
Sun Art Retail is a grocery store with huge revenues and low margins. Alibaba’s market share is also shrinking in cloud infrastructure. This isn’t the only reason Alibaba’s cloud growth is slowing. Data security law: China orders state firms to migrate to government cloud services.
Does Management Have What It Takes? While this isn’t often discussed, I believe Alibaba is missing the leadership of Jack Ma. Jack was a charismatic and visionary leader. He brought troves of talented employees into Alibaba’s headquarters. And, in technology, employees really matter.
Now it seems Alibaba is losing its shine. Daniel Zhang, the new CEO, is struggling with a vastly spread-out business. A team lost a lot of shareholder capital in the acquisitions of Sun Art and Youku. In addition, Alibaba’s trying to control each of its global subsidiaries. Long-term Returns First, let’s looking at earnings. We need to understand that because of unrealized losses and write-downs, Alibaba’s net income isn’t a reliable representation of the company’s true earnings power. Free cash flow is a better metric.
This 3-year average is a better representation of Alibaba’s true earnings. In 2022, economic conditions in China were very poor. Notice, China Commerce is Alibaba’s only profitable segment. The reason for this: Chinese companies compete aggressively on price and Alibaba is investing heavily cloud, international commerce, and logistics.
17 billion shares outstanding in 2033. 35 per share of free cash flow in 10 years’ time. I’ve applied a terminal multiple of 15. In Conclusion Alongside Alibaba insiders, I’ve reduced my expectations for BABA stock. Alibaba is losing market share quite rapidly. Huawei, and Tencent has hindered Alibaba’s growth.
Editor’s Note: This article discusses one or more securities that do not trade on a major U. Please be aware of the risks associated with these stocks. A natural contrarian, business student, and value investor, I seek opportunities in the market that present outsized returns. I am constantly analyzing financial statements, stress-testing my opinions, and studying the principles of great investors. BABA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions.