Last Updated on October 7, 2021
Alibaba stock in 2021 has been mentioned a lot in the news lately. You’ve heard Superinvestors are buying it. For example Charlie Munger, Mohnish Pabrai, and Bill Miller. Other value investors also follow this stock closely. But you still don’t know if it’s wise to buy this stock or not. This article might help you. It will give you the newest information about Alibaba. But you have to decide for yourself if it is wise to invest in this stock or not.
So, let’s begin. Fear is currently winning on this stock and as a result, the stock price of Alibaba is falling. The price has fallen from its highest level since October 23, 2020, till October 2021 by more than 45%. Many value investors consider this stock as a great opportunity, Others are fearful.
As one of our great Superinvestors would say:
“Be fearful when others are greedy. Be greedy when others are fearful.”Warren Buffet
But is this the case with Alibaba? Let’s find out what we can about the company.
Revenue Streams of Alibaba
It is important to know revenue streams as well as the revenues themselves. Companies are preparing strategies for the future based on revenue. Looking at revenue streams as investors we can see in which direction the company is moving.
There are four main revenue streams for Alibaba. Those consist of:
- Core commerce;
- Cloud computing;
- Digital Media and Etertainment;
- Innovation initiatives and others.
Core Commerce as Main Revenue Stream for Alibaba
Alibaba has various digital retail and wholesale marketplaces and the company generates 87% of the revenue from the Core Commerce segment. That is a lot. Compared to Amazon which has about 55% of commerce revenue.
Other Segments Account for 13% of Revenue
Cloud computing, digital media and entertainment, innovation initiatives and others contribute in aggregate 13% of Alibaba’s revenue.
Cloud computing. The cloud computing segment is comprised of Alibaba Cloud, which offers a complete suite of cloud services to customers worldwide, including elastic computing, database, storage, network virtualization, large scale computing, security, management and application, big data analytics, machine learning platform and IoT services. This segment generates 8% of total revenue (compared to Amazon web services which generates 12.4% of the revenue).
Digital media and entertainment. The digital media and entertainment businesses leverage their deep consumer insights to serve the broader interests of consumers through their key distribution platform, Youku, and through Alibaba Pictures and our other diverse content platforms that provide online videos, films, live events, news feeds and literature, among others. In addition, they develop, operate and distribute mobile games through Lingxi Games.
Innovation initiatives and others. The innovation initiatives and others segment includes businesses such as Amap, DingTalk, Tmall Genie and others.
Alibaba Monetization Model
|Core commerce||RMB||US$||% of revenue|
|China commerce retail||473,683||72,298||66%|
|China commerce wholesale||14,322||2,186||2%|
|International commerce retail||34,455||5,259||5%|
|International commerce wholesale||14,396||2,197||2%|
|Cainiao logistics services||37,258||5,687||5%|
|Local Consumer Services||31,537||4,813||5%|
|Total core commerce||621,146||94,805||87%|
|Digital media and entertainment||31,186||4,760||4%|
|Innovation initiatives and others||4,837||739||1%|
Alibaba is an interesting business that obviously generates the most revenue from commerce. In the medium to distant future, we will certainly see the cloud computing segment grow, given that Alibaba has been persistently investing in this segment all these years since 2009.
|In millions $||2017||2018||2019||2020||2021|
In the fiscal year ended March 31, 2021 revenue was $109,480 million, an increase of 53% year-over-year. The annual active consumers on its online shopping properties in China reached 828 million by the end of June 2021, increasing from 811 million at the first quarter of 2021. More than 80% of these users are from China.
As for EBITDA and net income, this is a very healthy growth. Alibaba undoubtedly has excellent financial indicators.
Superinvestors Who Bought Alibaba Stock in 2021
Several investors see great value in this stock. Mohnish Pabrai, Lee Ainslie, Bill Miller, Guy Spier, Thomas Russo all bought Alibaba stock last quarter. Charlie Munger has 165,320 stocks and Ray Dalio holds 1,419,060 stocks as of June 30, 2021.
All of these investors see the suffering that Alibaba is going through at the moment and believe the risk of delisting and the influence from the Chinese government is less than the potential return that the stock can bring in the future.
Superinvestors Who Sold Alibaba Stock in 2021
It is important to look at the other side as well and see which Superinvestors have sold shares of Alibaba in the previous period. There are far fewer of them than those who bought, and they are David Tepper, Chase Coleman and Greg Alexander.
Reason to sell Alibaba Stock in 2021
There are some risks investors face when they decide to buy stock of Alibaba in 2021. First of all, by the very fact that is a Chinese stock and “unknown” terrain for some U.S. investors, it sounds risky. But let’s take a look at what could happen to Alibab in the future.
Alibaba Stock 2021 Can Face More Fines
In an unprecedented move, regulators in China blocked the IPO for Ant Group last year. Chinese regulators said that “significant issues such as the changes of the financial technology regulatory environment” and explaining that “these issues may result in the company not meeting the conditions for listing or meeting the information disclosure requirements.” However, it was Chinese president Xi Jinping’s personal decision to suspend the IPO.
Alibaba was also investigated by Chinese regulators for anti-competitive practices and fined approximately $2.8 billion. In China, the government is very involved in the workings of Chinese companies, and these types of political risks are unpredictable.
It’s unclear to investors what type of impact regulators could have on Alibaba moving forward, and it’s a major red flag that has continually stoked fear among investors.
Chinese Government May Take Minority Stake
Chinese government may take minority stake as it did with ByteDance in August 2021. Chinese companies that list may end up going private. The people who control a company they plan to take private may release bad news and withhold good news so the stock goes down, and then buy back the firm’s stock at a very low price,
This happens not only with Chinese companies but also with American ones too. However, it hardly can happen with a company like Alibaba because it is too big to take private.
Alibaba May Get Delisted by NYSE
Some of the China companies have been delisted from the NYSE. I am talking about shares in the Chinese telecoms – China Mobile, China Unicom Hong Kong and China Telecom. These companies were tied to China’s military companies. There is a risk Alibaba stock in 2021 can be delisted in the future as well.
If Alibaba gets delisted, the company’s shares can keep trading through a process known as “over-the-counter.” That means the stock is outside the system. It may have problems with regulations and liquidity, in other words for sellers to find a buyers. That would be bad, but at least you would still have your holdings.
Structure of Alibaba
Alibaba conducts its business through a large number of Chinese and foreign operating entities as they continue to expand through organic growth and acquisitions and consolidations of new businesses.
The chart below summarizes their corporate structure and identifies their significant subsidiaries.
The bottom line
Alibaba is a unique stock that offers investors growth, strong fundamentals, and an attractive valuation. However, it is risky business all things considered.
It’s possible that the company indefinitely trades at a lower valuation than rivals such as Amazon because investors might never fully be confident that political risks won’t reappear in the future.
Anyway, the stock can return high yield. This upside makes Alibaba an interesting stock idea for value investors.