Alibaba - The Story so Far

Alibaba, founded by Jack Ma in 1999, is a Chinese multinational technology company that specializes in e-commerce, retail, internet and technology. To name a few, Alibaba owns sites such as Taobao, Tmal and also Ant Group, which runs China’s largest payment platform, Alipay.

With many recent controversies, is Alibaba a company to invest in?

Alibaba has benefited from the coronavirus pandemic as millions of people worldwide have switched to online alternatives to buy their goods and services. This is maybe why Alibaba shares have risen over 64% this year. In August’s first-quarter report, it was revealed that Alibaba’s sales had risen by 30% from last year. On top of this, China’s well-known “Singles Day”, an unofficial holiday for shopping, saw Chinese consumers spend $74bn in just 24 hours! This is nearly double that of last year’s total of $38.4bn.

Earnings also increased by 15% to $2.10 per share, with analysts estimating that in the current quarter, this has risen further to $3.30 per share.

Consumers are doing more shopping online than ever as the pandemic has accelerated the movement to a more digitised world. On top of the company’s e-commerce edge, Alibaba is also benefiting from businesses relying on its cloud computing resources like Alibaba Cloud Platform.

With China’s growth on an almost exponential trend, consumer incomes are rising at a rapid rate. With a vast growth in the Chinese middle class, this is an opportunity for Alibaba to increase its profitability as consumers increase their consumption. It is estimated that the Chinese upper-middle class will grow from 14% in 2012 to 54% in 2022. Looking into the future, it is clear that Alibaba will continue to be a profitable company in the backdrop of such consumer growth.

Alibaba has a deep interest in expanding its overseas operations and is pushing for a start in the US. However, political tensions between Beijing and Washington, as well as Chinese firms not complying to auditing oversight rules, has posed a threat to Chinese firms, such as Alibaba, facing delisting from the US stock exchange. This has seriously impacted investor confidence and has led to large sell-offs in Alibaba shares, causing a drastic reduction in their share price.

Jack Ma, Alibaba’s CEO, is also facing scrutiny from the People’s Bank of China (PBC) after speaking out against the country’s financial watchdogs and banks. Ma said that Chinese banks operate with a “pawnshop” mentality and that the Chinese financial system needed revolutionising. This led to the suspension of the Alibaba owned Ant Group IPO, as investors lost confidence in Ma’s company.

Just this week, China’s market regulator announced an antitrust investigation into Alibaba. The market regulator is investigating suspected monopolistic practises. In the worst-case scenario, Alibaba could be fined up to 10% of its previous year’s sales. This caused a 14% drop in Alibaba’s share price last Thursday, now valuing the company at $221 a share, down from its peak of $310 a share.

Despite all of Alibaba’s recent controversies, the current low stock price looks attractive. The pandemic has accelerated a movement to an increasingly digital world, and this has benefited the e-commerce industry.

Buying Alibaba shares is a bet on the Chinese economy and its future consumer growth. With consumer incomes drastically increasing, there is no doubt the profitability of Alibaba will continue to increase, especially as the company begins to tap into rural markets where there are roughly 700 million people.