Alibaba: The More It Drops, The More I Buy

Alibaba Taobao 11.11 Event

Alibaba (BABA) has been on a wild ride over the last year, but the more this stock drops, the more I buy.

Here's why:

BABA

Source: StockCharts.com

Alibaba's stock peaked at about $320 around the end of October last year. It's been all downhill from there. From peak to trough, Alibaba's stock slipped by nearly 44%, wiping out more than $300 billion of the company's market cap in the process. However, Alibaba continues to grow and is becoming more profitable. The company is rewarding its shareholders by increasing its buyback program, and the stock is remarkably cheap compared to similar firms. Moreover, Alibaba's technical image suggests that the stock made a long-term bottom recently. Due to the improving technical setup, low valuation, and a constructive fundamental backdrop, there is a strong probability that Alibaba's stock will appreciate substantially over the next year.

Earnings Snapshot

  • Alibaba recently put up a split quarter beating on EPS but slightly missing on revenues.
  • EPS came in at $2.57 vs the estimate for $2.22 (16% beat).
  • Revenues were light, $31.87 billion vs. the expected $32.4 billion figure (1.5% miss).
  • However, revenue rose 34% on a YoY basis.
  • The company reported an astounding 1.18 billion annual active customers, up 45 million QoQ.
  • The company also announced that it is increasing its share buyback program by 50%, from $10 billion to $15 billion.

Revenue Breakdown

Source: alibabagroup.com

The company's core China commerce segment performed very well, accounting for 66% of total revenues and growing at 34% YoY. While international retail accounted for 5% of total revenues, this segment expanded by 54% YoY. The company's logistics service also illustrated substantial growth, increasing revenues by 50% YoY. Total commerce grew by 35% YoY, and the company's cloud unit increased revenues by 29%. While cloud revenue growth slowed down, we see that Alibaba's retail segments continued to fire on all cylinders, delivering robust revenue growth for the company in Q1.

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Disclosure: I/we have a beneficial long position in the shares of BABA, AMZN either through stock ownership, options, or other derivatives.

Disclaimer: This article expresses solely my ...

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