I am bullish on Alibaba (BABA) as it has tremendous competitive advantages, strong growth momentum and a lengthy growth runway, and the stock currently trades at an attractive valuation based on its multiples relative to its historical levels.
Alibaba, headquartered in Hangzhou, China, is a multinational company that offers retail, ecommerce, technology, and Internet solutions to its customers.
The company was founded in April, 1999, and since then, it has become the world’s largest e-commerce brand. Its three main websites include Alibaba.com, Tmall, and Taobao.
Alibaba connects millions of consumers with businesses and merchants through its online platforms.
It operates in manufacturing, supplying, importing, and exporting capacities and has over 250,000 employees globally. Alibaba is also popular for its advanced cloud computing, AI technology, entertainment services, and online payment platforms.
Strengths
Alibaba has the strongest and one of the biggest clientele, supported by China’s population, which is more than any other country in the world.
The company’s global footprint is incomparable; in the year ended September, 2021, Alibaba’s total number of active users reached 1.24 billion.
It is also operational in several other countries, including Japan, India, Bangladesh, Pakistan, Thailand, and Vietnam. The company has managed to build a strong rapport in growth markets of countries other than China.
Alibaba’s strong go-to-market strategies, backed by innovations, also gives this company an upper hand amongst its competitors.
Recent Results
According to the semi-annual reports from September 2021, Alibaba experienced a 32% year-over-year growth in its revenues, taking the total to $63,077 million.
The revenues from international commerce, in both retail and wholesale sectors, reached $4,701 million, which was a 41% year-over-year increase. The net income attributable to ordinary shareholders reached $7,839 million. Additionally, the non-GAAP diluted earnings per ADS and the non-GAAP diluted earnings per share decreased by 15% year-over-year.
The adjusted EBIDTA margin for its commerce department was at 22%, while the EBIDTA margin for cloud computing was 2%. The non-GAAP net income for the six months ended in September 2021 was $11,169 million.
Valuation Metrics
BABA stock looks attractively priced here as it trades well below its historical averages on an EV/EBITDA ratio and normalized earnings per share basis.
Its enterprise EV/EBITDA ratio is 11.4x compared to its historical average of 20.3x and its normalized earnings per share ratio is 14.1x compared to its historical average of 26.2x. Analysts expect revenue to grow by ~18% in 2022, and EBITDA to be roughly flat year-over-year in 2022.
Wall Street’s Take
According to Wall Street analysts, BABA earns a Strong Buy analyst consensus based on 20 Buy ratings, three Hold ratings, and zero Sell ratings in the past three months. Additionally, the average Alibaba price target of $192.36 puts the upside potential at 62.8%.
Summary and Conclusions
Alibaba is a leading global technology giant that has commanding positions in e-commerce and artificial intelligence with numerous ventures in other industries, including financial technology. As a result, it has a massive growth runway.
On top of that, the stock looks extremely cheap here based on its valuation multiples relative to its history, and also trades at a large discount to its average price target, while Wall Street analysts are almost unanimously bullish on it.
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