Why Alibaba the #1 investment idea in the global market.

2023年8月31日

I will share an idea with Alibaba, which I consider to be the Top 1 in the global stock market.
In two years (from October 2020 to October 2022), Alibaba shares suffered a catastrophic drop: from $317 to $63. Last year, we shared skepticism about China. Why now there are reasons to think that a new long-term growing trend is emerging in the largest online retailer?

First, the reasons for the fall in stocks:
The initial phase of the decline was associated with the deflation of the bubble in Internet companies after the prospects for getting out of coronavirus restrictions became clear;
A campaign has been launched in China to strengthen state control over private Internet companies;
Alibaba suffered from state "guardianship" more than others because of the personality of founder Jack Ma, who allowed himself to criticize the policy of regulators;
Another headwind for all Chinese companies was the strengthening of geopolitical risks, which resulted in a real panic about a possible invasion of Taiwan in mid-2022. Foreign investors massively went to the exit;
Once again, Alibaba was the main victim, as its largest shareholder, the Japanese conglomerate SoftBank, was itself under attack due to accumulated debts and a bunch of unsuccessful investments in startups, which forced it to sell off its main liquid assets.

Such a rare combination of negative factors provided the perfect storm for Alibaba shares. Let's see, what grounds are there to hope that he is behind?
✔️ Alibaba has continued to grow all this time. After a 1.5-fold jump in revenue in the pandemic year 2020 to $106 billion, in 2021 it amounted to $133 billion, in 2022 due to the devaluation of the yuan in dollars. it fell to $127 billion. This year, the consensus forecast assumes revenue growth of 5%, net profit - by 25% to record levels for both indicators.
Alibaba's current P/E ratio is 11.6. The company reflects cash in the amount of $112 billion on the balance sheet, so the total cost (EV) is lower than capitalization, and EV/EBITDA = 6.7.
Amazon has P/E = 48, EV/EBITDA = 16.
The process of strengthening state control was completed without significant losses for the largest Chinese conglomerates. Now the authorities have the main task - economic growth. The problems due to the founder are also in the past. Jack Ma did not appear in public for a long time, there was talk that he had left the country. But in March, he appeared at a meeting with students in Hangzhou, and his foundation said that Jack Ma travels a lot in China. It seems that the authorities have concluded an unspoken truce with the businessman and make it possible to reduce the monopolistic influence in the Chinese economy by allocating daughters to separate public companies.
It is difficult to make your own expert opinion about geopolitical risks. As we wrote, in this matter, it is best to focus on the collective opinion of Asian (not Chinese!) investors. Fresh Goldman Sachs research shows that recently they have been investing more and more in China and do not share the pessimism of the Western media.
Softbank recently announced the completion of the exit from Alibaba. Last year, he sold almost $30 billion worth of Alibaba shares, this year the balance is $7.5 billion.
Alibaba increases payments to shareholders through buyback of shares. Over the past year, it has bought out of the market and repaid 4.5% of its shares (worth about $ 10 billion). It is planned to spend another $40 billion on buyback by March 2025.
This rarely happens - almost every factor-minus has an argument-plus, and Alibaba shares have not yet gone far from their lows!