Alibaba stock analysis. BABA.
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When Alibaba was listed on the New York Stock Exchange back in 2014, it was the largest IPO in world history, with a market cap of $231 billion. Today, 5 years later, the market cap is $215 billion. Let’s dive a bit deeper into its performance and try to better understand Alibaba.
The company is involved in a conglomerate of businesses, involved in Commerce, e-Payment, Shopping search engines as well as cloud computing.
The biggest revenue source, accounting for roughly 2/3rd of total revenue, is the China commerce segment. Not only it is the largest, but it is also the only profitable segment, with an operating margin of around 30%.
#alibabastock #babastock #investing #stocks
Visit our Substack for more: https://www.overlookedalpha.com
When Alibaba was listed on the New York Stock Exchange back in 2014, it was the largest IPO in world history, with a market cap of $231 billion. Today, 5 years later, the market cap is $215 billion. Let’s dive a bit deeper into its performance and try to better understand Alibaba.
The company is involved in a conglomerate of businesses, involved in Commerce, e-Payment, Shopping search engines as well as cloud computing.
The biggest revenue source, accounting for roughly 2/3rd of total revenue, is the China commerce segment. Not only it is the largest, but it is also the only profitable segment, with an operating margin of around 30%.
#alibabastock #babastock #investing #stocks
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NewsTranscript
00:00 Should you buy Alibaba stock? Alibaba stock jumped 14% today after the company announced
00:06 a new structure to its business. Alibaba is going to be broken up into 6 separate companies,
00:12 China Commerce, Global Commerce, Local Services, Logistics, Cloud and Digital Media. These separate
00:18 companies will have their own management and governance and will have the option to IPO later
00:22 down the track. So why has Alibaba done this? Well clearly Alibaba believes its business is
00:27 being crippled by Chinese regulators. Splitting the company up means Alibaba's separate businesses
00:33 have a greater chance to thrive and reach their potential. This move makes Alibaba appear less
00:38 like a monopoly. But what does this mean for Alibaba investors? Well it's not clear yet whether
00:44 the 6 businesses are going to be spun off as their own public companies or if they are going to exist
00:48 within the Alibaba group. My guess is that the best performing segments will eventually get spun
00:54 off. And if you do own Alibaba stock, you're going to receive shares in those individual spin offs
00:59 when that happens. It's important to note that Alibaba as a whole looks undervalued. Its commerce
01:05 segment made $26 billion in EBITDA in 2022. Put a 10 times multiple on that figure and you get a
01:11 value of $260 billion which is already more than the current market cap. Alibaba Cloud made only
01:17 $200 million in 2022 but Cloud is higher margin and has higher growth potential so put a
01:23 25 times multiple on that figure and you get a market cap of around $5 billion. Meanwhile,
01:29 local services, logistics and digital media are all loss making and smaller in scope.
01:34 There's also an innovation segment which is smaller as well and will remain part of the parent.
01:39 My preference would be to hang on to the commerce and cloud businesses and sell the rest. But
01:44 obviously it depends at what value these individual companies will trade for in the marketplace.
01:49 There are risks too. The CCP may try to penalise this restructuring. And there could be issues if
01:55 these new companies are not listed in the US. Overall though I think this news should unlock
02:00 at least some value for Alibaba shareholders. And as China opens up, there's growth potential here
02:05 as well. So I give the stock a bullish rating after this news but these are my personal opinions,
02:10 not financial advice. For more detailed investing ideas, visit our website, ioverlookedalpha.com.