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Can the Growth in Alibaba Stock Continue Amid Geopolitical Whirlwinds?

Tom Taulli

When Alibaba Group (NYSE:BABA) last reported its earnings in May, there was little to quibble about. Revenues shot-up by 51% and net income came to an impressive $3.85 billion.

Alibaba stock is a solid name, but geopolitics presents big worries

Yet this performance was not enough to gin up interest in Alibaba stock. During the past three months, the shares have gone from $178 to $157.

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Of course, BABA stock is no outlier. Other notable Chinese stocks have also come under pressure, such as JD.com (NASDAQ:JD), Weibo Corporation (NASDAQ:WB) and Baidu, Inc (NASDAQ:BIDU). Yes, the U.S.-China trade war has certainly taken a toll.

As for Alibaba stock, the next earnings report – which will be announced Thursday before the market opens – will be an important one. Keep in mind that the company has already indicated that growth will likely decelerate.

So, what does the Street expect for the current quarter? Well, analysts forecast revenues to jump by 28.4% to $16.09 billion and earnings to come to $1.49 per share. And yes, given BABA’s own conservative guidance, the numbers are probably beatable. But this may not matter much. For now, the markets are mostly concerned about the trade situation, which is vague.

The Quarterly Events for Alibaba Stock

For BABA stock, the latest quarter has certainly been active. Let’s take a look at some of the highlights:

  • The company filed confidential papers for a listing on the Hong Kong market. The proposed offering, which will be led by China International Capital Corp and Credit Suisse (NYSE:CS), will likely raise billions (keep in mind that the U.S. IPO came to $25 billion). Although, due to the continued instability in Hong Kong, the listing is far from a guarantee.
  • Alibaba’s B2C platform for brands and retailers, Tmall, announced a partnership with the New York Fashion Week (NYFW): The Shows. There will also be similar arrangements with the Paris Fashion Week and Milan Fashion Week.
  • Luxury brand Michael Kors – which is a part of Capri Holdings Limited (NYSE:CPRI) – has opened a digital store on Tmall. The deal will also include exclusive access to special products.
  • Alibaba Group announced a strategic partnership with the municipal government of Yiwu, in the Zhejiang province of China. The deal will involve the launch of the eWTP hub, which will facilitate trade in the world’s largest wholesale market.
  • For the “6.18 Mid-Year Shopping Festival,” Taobao and Tmall had record-breaking performances, as demand from less-developed cities surged. More than 200,000 brands took part in the event.

Bottom Line on BABA Stock

For the long-term, I think Alibaba stock looks attractive. The company is similar to Amazon.com (NASDAQ:AMZN), with dominant positions in key markets like e-commerce and cloud computing. What’s more, the market in China is much larger. For example, BABA has a whopping 721 million mobile monthly active users (MAUs), up 104 million on a year-over-year basis.

As for the cloud business, the prior quarter saw a 76% surge on the top line to $1.15 billion. The company has been leveraging its massive platform to capture new customers and has also been aggressive with adding new services like blockchain, cybersecurity, database systems and artificial intelligence.

Something else: the valuation on Alibaba stock is fairly reasonable. Consider that the forward price-to-earnings multiple is 18.5-times. By comparison, JD.com is at 26x.

However, in the near-term, there still may not be much bullishness with BABA stock. The uncertainties regarding trade seem to be paramount concerns right now. And this could mean that shares will be choppy for some time.

Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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