Stock Analysis: BABA (Alibaba Group)

Overview

The 8th largest publicly traded Chinese company according to 2020 Forbes Global 2000, dubbed the “Amazon of China” with a revenue of over US$70 billion for the fiscal year 2020, has experienced a stock price plummet of 50% in 10 months. This comes as a result of sweeping crackdowns from the Chinese government, the founder Jack Ma disappearing for three months, and fears of slowing economic recovery in China.

Analysis

As covered in our division’s introductory post the ‘earnings per share’ indicator highlights a company’s profitability. To calculate EPS, take the net income of a company after tax and subtract its preferred stock dividends, then divide by its outstanding shares. 

  • For the latest quarter ending June 30, 2021, Alibaba’s EPS was $2.54, a 3.25% increase year-over-year
  • For the 12 months ending June 30, 2021 was $8.43, an 8.07% decline YOY.

Let’s compare Alibaba’s EPS with its largest domestic competitor: JD.com, and the global giant leading the e-commerce industry: Amazon.

The EPS of Amazon, Alibaba, and JD.com

You may be wondering about the boom in sales from Amazon in 2017 which began and unprecedented level of growth which continues to this day. It established Alexa-powered devices and continued to grow it’s AWS business, which is currently bringing in a vast majority of the revenue. In 2020 it was responsible for 33% of enterprise spending on cloud infrastructure – it’s biggest client is Netflix. Alibaba Cloud is a similar cloud computing business but is not as developed and widely used as AWS, however Alibaba is keen to change this: investing $1 billion across the Asia Pacific region over the next three years. Moreover it had an astonishing revenue growth of 59% in 2020. If Alibaba can increase its share of the web services market, it has good reason to expect to head towards Amazon’s EPS.

Continued crackdowns by the Chinese Government, anti-monopoly investigations into Alibaba, and fears China’s economic recovery from the pandemic is losing momentum, have resulted in Alibaba wearing its lowest price-to-earnings ratio since its listing in New York in 2014. This can be taken as a sign of undervaluation, however the wider context of the falling Chinese markets and bearish sentiment must be considered.

Conclusion

From this brief analysis of Alibaba and it’s plummeting stock price, it is certainly a good long-term position to buy as short-term more negative press about crackdowns may continue the downward trend. It should be noted after hours, just before trading closed for the weekend an institution purchased $611.71 million worth of shares. Furthermore, 2 block trades in after hours worth $257.56 million and $354.15 million were executed. 

The final question is, how soon will this battered Chinese tech giant’s stock find the floor?

Jack Smithers, University of Bath

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