Alibaba Group Holding Limited ($BABA) has shown remarkable growth in its financial performance over the past few years, yet this hasn’t translated into stock price appreciation, revealing a complex relationship between operational success and market valuation. In FY 2020, Alibaba reported revenues of $83 billion with 2.7 billion shares outstanding, trading at a share price of $300. Fast forward to 2024, and the company’s revenue has surged to $130 billion, a testament to its robust business model, with shares outstanding reduced to 2.3 billion due to aggressive buyback programs, yet the share price has plummeted to $80.
Analyzing the trends, Alibaba’s revenue has grown at a compound annual growth rate (CAGR) of 31.3% over the past decade, which is impressive by any standard. However, this growth in revenue hasn’t reflected positively on the stock price, which has decreased by 20% since 2020. This discrepancy is highlighted in graphs comparing Alibaba’s revenues against its stock price, showing a stark contrast between the company’s financial health and investor sentiment.
Alibaba’s commitment to enhancing shareholder value is evident through its share buyback initiatives, having spent over $17.5 billion last year to repurchase 200 million shares. This action effectively increases the ownership percentage of existing shareholders, providing them with more of the company for their investment.
In terms of financial stability, Alibaba boasts more cash than long-term debt, which positions the company well for future investments or weathering economic downturns. However, despite this strong financial position, Alibaba has experienced a loss in market share in recent years, though it still holds the title as the largest player in China’s e-commerce landscape, which remains the world’s biggest e-commerce market.
On the technological front, Alibaba’s cloud computing division has solidified its position as the market leader, with growth regaining momentum at 7% top-line growth, even after strategic cuts to low-margin products. This sector’s performance is particularly noteworthy, with EBITA jumping by an astounding 89%, underlining the profitability and potential of Alibaba’s cloud services.
The disconnect between Alibaba’s operational success and its stock performance can be partly attributed to the unique economic environment in China, where despite being 90% capitalistic in practice, the correlation between GDP growth and stock market returns isn’t as straightforward as in fully free-market economies. Current market sentiment towards Chinese stocks is notably negative, influenced by regulatory crackdowns, macroeconomic factors, and geopolitical tensions, particularly with the prospect of a Trump administration, which adds a layer of country risk to investing in $BABA.
While Alibaba remains an incredible business with significant operations and market leadership in key sectors, the external pressures of Chinese regulation, macroeconomic conditions, and the prevailing negative sentiment have overshadowed its intrinsic value, leading to a depressed stock price. Investors love Alibaba as a company but are wary of the stock due to these overarching risks.
In summary, Alibaba’s journey from 2020 to 2024 showcases a company that’s financially robust and operationally expanding, yet facing challenges in translating this success into stock market gains due to external factors beyond its control.
Sources: