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In 2020, Alibaba was a powerhouse and the fifth largest company in the world. Government policies, a US-China trade war and delisting fears have sent the shares down more than 75%.
Based on the recent share price, Alibaba has a market cap of 191 billion US dollars and an enterprise value of roughly 167 billion.
Revenues for 2022 were 134.6 billion dollars, net income was 7.4 billion, adjusted ebitda was 25 billion and free cash flow was 15.6 billion.
That means Alibaba currently trades at roughly 1.2 times revenue, 6.7 times adjusted EBITDA and 10.7 times free cash flow. That’s pretty cheap for such a powerful business.
However, growth is slowing. In 2021 for example, Alibaba earned 110 billion dollars in revenue, 26 billion in free cash flow and 21.9 billion in net income.
In other words, free cash flow dropped 40% and net income dropped by two thirds in 2022.
On top of that gross margins have been crushed from 58% in 2018 to 36% today.
That has a lot to do with the antitrust policies from the Chinese communist party. In 2021 Alibaba received billions of dollars of fines.
That stance seemed to be softening after the Chinese Politburo signaled ‘rectification of the platform economy’ was over.
However, the most recent party congress has rekindled concerns.
Chinese President Xi’s definition of national security has replaced the economy as China’s central focus.
And a viral clip of former president Hu being escorted out of the congress provides a glimpse of the authoritarian nature of the regime.
As an outsider it's hard to have any real expertise on what is going on in China or what the future will hold.
On the one hand, China’s economy is still forecast to grow at a rapid clip for a number of years. And Alibaba, at only 10 times free cash flow represents a great opportunity to capitalize on that. Even if its ecommerce business stagnates, Alibaba’s cloud business has huge potential for growth.
But if China is loosening its attitude to free market economics and continues to clamp down on large corporations then Alibaba stock is likely to go nowhere.
The risk to reward looks almost 50:50 which are not the kids of odds you want as an investor..
That’s why I give the stock a neutral rating. In full disclosure I do own some shares in Alibaba and these are my own personal opinions, not financial advice.
In 2020, Alibaba was a powerhouse and the fifth largest company in the world. Government policies, a US-China trade war and delisting fears have sent the shares down more than 75%.
Based on the recent share price, Alibaba has a market cap of 191 billion US dollars and an enterprise value of roughly 167 billion.
Revenues for 2022 were 134.6 billion dollars, net income was 7.4 billion, adjusted ebitda was 25 billion and free cash flow was 15.6 billion.
That means Alibaba currently trades at roughly 1.2 times revenue, 6.7 times adjusted EBITDA and 10.7 times free cash flow. That’s pretty cheap for such a powerful business.
However, growth is slowing. In 2021 for example, Alibaba earned 110 billion dollars in revenue, 26 billion in free cash flow and 21.9 billion in net income.
In other words, free cash flow dropped 40% and net income dropped by two thirds in 2022.
On top of that gross margins have been crushed from 58% in 2018 to 36% today.
That has a lot to do with the antitrust policies from the Chinese communist party. In 2021 Alibaba received billions of dollars of fines.
That stance seemed to be softening after the Chinese Politburo signaled ‘rectification of the platform economy’ was over.
However, the most recent party congress has rekindled concerns.
Chinese President Xi’s definition of national security has replaced the economy as China’s central focus.
And a viral clip of former president Hu being escorted out of the congress provides a glimpse of the authoritarian nature of the regime.
As an outsider it's hard to have any real expertise on what is going on in China or what the future will hold.
On the one hand, China’s economy is still forecast to grow at a rapid clip for a number of years. And Alibaba, at only 10 times free cash flow represents a great opportunity to capitalize on that. Even if its ecommerce business stagnates, Alibaba’s cloud business has huge potential for growth.
But if China is loosening its attitude to free market economics and continues to clamp down on large corporations then Alibaba stock is likely to go nowhere.
The risk to reward looks almost 50:50 which are not the kids of odds you want as an investor..
That’s why I give the stock a neutral rating. In full disclosure I do own some shares in Alibaba and these are my own personal opinions, not financial advice.
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NewsTranscript
00:00 Should you buy Alibaba stock?
00:01 In 2020 Alibaba was a powerhouse and the 5th largest company in the world.
00:06 Government policies, a US-China trade war and delisting fears have sent the shares down
00:10 more than 75%.
00:12 Based on the recent share price Alibaba has a market cap of $191 billion and an enterprise
00:17 value of roughly $167 billion.
00:20 That means Alibaba currently trades at roughly 1.2 times revenue, 6.7 times EBITDA and 10.7
00:27 times free cash flow.
00:28 That's pretty cheap for such a powerful business.
00:30 However the most recent Communist Party Congress has rekindled concerns.
00:35 Chinese President Xi's definition of national security has replaced the economy as China's
00:40 central focus.
00:41 And a viral clip of former President Hu being escorted out of the Congress provides a glimpse
00:47 of the authoritarian nature of the regime.
00:50 If China is loosening its attitude to free market economics and continues to clamp down
00:55 on large corporations then Alibaba's stock could go nowhere.