Alibaba Stock is Looking Really Cheap Right Now

2021年2月10日

BABA is one of the world's leading Ecommerce companies in the world's largest consumer market. The company is growing super fast too. According to the Q4 earnings release they put out last week, they had about 900 million people on their online marketplaces each month!

In Q4 2020 revenue for Alibaba was 221 billion Chinese Yuan (CNY) or about 33 billion USD, which was up 37% year over year. Net income was 77 billion CNY or about 12 billion USD, up 27% year on year. Basically Alibaba is killing it and despite their massive size, they continue to grow really fast. Let's not forget, besides Ecommerce, the company also has major businesses in cloud computing (just like Amazon AMZN) and they also have China's number 2 market share food delivery business "Eleme" which is similar to Doordash NYSE:DASH

So how does it make sense for such a fast growing Ecommerce company to have a PE ratio of just 30?!? For reference, Amazon has a PE ratio of 79! Now of course Amazon's price might be a bit rich thanks to Jerome Powell and his big money printer, but should Amazon really have a PE that's almost triple that of Alibaba?

China's macroeconomy is growing much faster than America's, China's middle class (350 million plus) exceeds that of America's entire population. Also Alibaba's cloud revenue is soaring. It grew by 50% year over year in the last quarter to 16 billion CNY, about 2.4 billion USD and it just made positive EBITA for the first time. For comparison, Amazon's cloud business in Q4 grew its revenue by 28%. Of course Amazon is a great company: but there is a lot of risk there too, US interest rates are at record lows and lots of Pols down in Washington DC are talking antitrust.

Now of course everyone is freaking out because the Chinese Government delayed Ant Financial's IPO (Alibaba owns 33% of Ant) and the government is also investigating Alibaba for monopolistic practices. But seriously everyone needs to look through this, Ant will probably IPO in the future, and the anti-monopoly isn't really much to worry about either, apparently Alibaba was pressuring some of their merchants to not sell on competing platforms like JD and Pinduoduo PDD so even if this alleged practice at Alibaba stops, it doesn't really matter much to Alibaba. Chinese people are still gonna all sorts of things on Alibaba; the anti-monopoly investigation doesn't really matter and will probably just result in some minor changes at most.

Worth noting is Alibaba just sold five billion dollars of bonds yielding between 2.1% and 3.2%. These bonds are due between 20 and 40 years in the future, so if Investors really thought Alibaba was gonna go under, why would they accept such a low yield on such long term debt?