2024-04-12 02:29:16 ET
Summary
- I have to admit that my previous extremely optimistic stance was wrong, as I have underestimated the adverse effect of the intensifying competition in the Chinese e-commerce market.
- Moreover, Alibaba has been losing its market share in the global cloud infrastructure market for three consecutive years and faces technological constraints due to the technological war between China and the USA.
- The stock is undervalued, but the discount is fair considering all the risks.
Introduction
I had a thesis about Alibaba ( BABA ) in January 2024 with a "Strong buy" rating. However, recent developments suggest that I might be wrong and I was too optimistic mostly due to BABA's very cheap valuation. But if something is significantly below its fair value, there are highly likely fundamental reasons for a generous discount. I am glad that BABA's share price did not drop since my first thesis (but underperformed versus S&P 500) and today I want to downgrade the stock to a "Sell" rating. Yes, Alibaba's stock is significantly undervalued, but it has been undervalued for ages. The discount is fair considering the company's stagnating profitability, high market saturation and intensifying competition in e-commerce among other prominent Chinese players....
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For further details see:
Alibaba: I Was Fooled By The Valuation (Downgrade)