KWEB - Alibaba: A River That Will Not Flow Backwards

2024-02-26 04:24:38 ET

Summary

• Some dramatic scenarios that were suggested in 2021-2022 for Alibaba have not taken place. Instead, China faces an economic crisis and domestic competition is intense.
• Alibaba has a long track record of innovating and competing successfully, and with its strong cash flows and balance sheet, it has the wherewithal to continue doing so.
• Once an economic recovery does happen, Alibaba should be less disadvantaged relative to budget-focused competitors. Consumers don't want lower-quality goods over the long term.
• Positive developments in terms of China-U.S. relations and U.S.-listed Chinese stocks have not gotten much attention.

Investment Thesis

Alibaba Group Holding Limited ( BABA )( BABAF ) was one of the most controversial stocks of 2021 and 2022. The fervour may have died down somewhat as certain dramatic scenarios that were suggested, e.g. being crushed by the Chinese government and delisted from U.S. stock exchanges, have not come to pass -- and yet new reasons for the stock to languish have appeared. Business performance is more tepid now and presumably many Western investors don't think Chinese stocks are worth the headache, anymore. With concerns about geopolitical tensions unlikely to fade significantly in the foreseeable future, it's hard to see Alibaba ever regaining the valuation, let alone the kinds of multiples, it once had in 2021....

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