Alibaba (BABA)is a top Chinese technology company that operates some of the most popular brands in the e-commerce industry.
It owns Alibaba.com, a wholesale platform that lets people buy products directly from manufacturers. Other e-commerce brands in its portfolio are AliExpress, Lazada, and Daraz.
Alibaba has a big presence in other industries. It owns Taobao and Tmall, two of the leading e-commerce platforms in China.
It also owns Alibaba Cloud, the fourth-biggest cloud computing company in the world after Amazon, Microsoft, and Google. Its other businesses are Elle.me, Youku, and DingTalk, among others.
Alibaba has gone through a rough patch in the past few years. It is facing intense competition from companies like JD and PDD Holdings. Also, regulators have helped to slow its business, especially Ant Group, its financial services arm.
As a result, its stock has dropped from a record high of $308 in 2020 to $85, bringing its valuation from over $845 billion to $182 billion.
Alibaba stock has risen in the last three consecutive weeks, moving to its highest point since May 2024. Its American ADRs were trading at $84 on Monday while the HypeIndex rose by 73%.
Positive hype
Alibaba has attracted investors after boosting its payouts to investors. In the second quarter, it repurchased 613 million shares in Hong Kong and the US for $5.8 billion. As a result, it has reduced the number of outstanding shares to 19 billion, down by over 445 million from March 2024.
By buying back its stock, the company is confident that its stock is undervalued. It also hopes to boost the earnings per share (EPS), which is calculated by dividing income with outstanding shares.
Alibaba reported modestly good financial results, with its revenue rising by 4% to $33.47 billion in the second quarter. It also reported strong net income of $3.34 billion last quarter.
Most notably, its cloud division continued growing, reaching $3.36 billion as the company continued to invest in artificial intelligence.
Alibaba is widely seen as a highly undervalued company as it trades with a forward P/E multiple of 13.6, lower than the S&P 500 average of 21. It is also cheaper than other e-commerce brands like PDD Holdings, MercadoLibre, and Coupang.
The management has also reduced its costs by shedding over 10,000 jobs in the past few years.
Wall Street analysts are bullish on the stock, with 47 of the 48 of them having a buy rating. The average stock estimate is $107, higher than the present $85.
Technically, there are signs that the stock has bottomed around the support at $75 while the accumulation and distribution indicator has pointed upwards, meaning that investors are likely buying.
Negative hype
The company’s cloud computing business is facing tough competition abroad as most companies are comfortable with its American competitors like Amazon AWS and Microsoft Azure.
The cloud division is also facing substantial local competition from companies like Tencent and Huawei. While the market is big, the rising competition means that its growth and margins will be slow.
Alibaba is highly exposed to the ongoing tensions between the United States and China. For example, companies like Nvidia have been barred from selling some of their products to Chinese firms. These restrictions could affect its growth in key industries like AI and machine learning.
Summary on Alibaba stock
Alibaba stock has dropped sharply from its all-time high, mostly because of Beijing’s regulatory actions. For example, authorities ended the Ant Financial IPO which valued it at over $300 billion. Recent private valuation metrics show that the company is valued at around $70 billion.
Alibaba’s management has worked to turn around the company but faced other challenges like competition and soft global demand. Nonetheless, the company will likely benefit from the ongoing restructuring process and its actions to return funds to investors.
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