Shares of China’s tech giant Alibaba (NYSE: BABA) are up 36% in 2020, compared to the S&P 500 gains of 8.8%. Alibaba stock has outperformed the broader indexes since its IPO in 2014. The tech stock has more than tripled returns since going public in 2014 compared to the S&P 500 gains of 76% in this period.
Let’s see if Alibaba can continue to outperform the market in 2021 and beyond.
Alibaba is a diversified tech conglomerate
Alibaba is one of the largest companies trading on the NYSE with a market cap of $822 billion. It is an internet company with multiple business segments that include a fast-growing cloud computing business as well as a digital payments vertical.
It is the largest e-commerce company in China which is one of the fastest growing economies in the world. In fact, China might be the largest global economy by the end of 2035 as per industry estimates.
The country’s rapidly growing middle class and an increase in purchasing power will drive GDP growth as well improve penetration of e-commerce sales. Despite the COVID-19 pandemic, the International Monetary Fund forecasts China’s GDP to grow by 1.9% in 2020, compared to a 4% decline in the U.S. economy.
There are projections that state China’s middle class will account for 1 billion people or 25% of the global total. We can see how Alibaba will benefit from the evolution of China’s digital landscape as well as an increase in purchasing power of the country’s populace.
Key metrics for Alibaba
Alibaba surpassed $1 trillion in GMV (gross merchandise volume) in fiscal 2020 which means the platform accounted for 16.7% of total retail sales given China’s annual retail sales estimates are close to $6 trillion.
The number of annual active customers in Alibaba’s China retail marketplace touched 757 million for the 12-months ended September 30, 2020. This represents a quarterly increase of 15 million while mobile monthly active users touched 881 million.
In the fiscal second quarter of 2021 ended in September, Alibaba’s total sales grew by 30% year-over-year driven by robust growth in e-commerce and cloud computing. Its non-GAAP net income stood at RMB 26.5 billion indicating a net margin of 17.1%. Alibaba’s free cash flow also rose by a healthy 33% in Q2.
Focus on expansion
While Alibaba generates majority of sales from e-commerce it is also expanding aggressively in the traditional retail space. The company opened its first Freshippo grocery brick and mortar store four years back and has now over 200 stores.
Alibaba has been able to leverage its e-commerce leadership and gain traction in other verticals. Its Cainiao platform helps to co-ordinate delivery of packages across third-party contractors. Further, it has also managed to develop a solid digital payments platform to facilitate e-commerce transactions.
Alibaba Cloud remains a major revenue driver for the firm. This business has grown sales by about 60% in Q1 and Q2 of fiscal 2021 and now accounts for over 8% of total sales. It’s now eyeing expansion in high-growth segments like streaming and food delivery as well.
Alibaba remains a top bet for the long-term given its focus on improving profit margins, multiple secular tailwinds and a leadership position in one of the largest world economies.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
