2. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 103
Alibaba Group Holding Limited (NYSE:BABA) is a prominent Chinese multinational technology enterprise renowned for its diverse range of activities across e-commerce, retail, internet services, and technology. Its business activities span various sectors, including core commerce, digital media and entertainment, and cloud computing.
Alibaba’s (NYSE:BABA) portfolio includes several famous platforms and services. It runs Taobao and Tmall, major digital retail platforms, and Alimama, its in-house monetization service. The company also operates online wholesale sites such as 1688.com and Alibaba.com, along with AliExpress, an international retail marketplace.
Additionally, Alibaba (NYSE:BABA) owns several e-commerce platforms like Lazada, Trendyol, and Daraz, and a grocery retail platform called Freshippo. Tmall Global serves as its import-focused e-commerce outlet.
Instead of directly selling products, Alibaba (NYSE:BABA) earns revenue by charging fees and commissions to merchants who use its platforms, including AliExpress. The company holds a dominant position in China’s retail market, commanding a 40% share of the total e-commerce GMV and a substantial active user base of 930 million. The company also generates significant revenue from its cloud computing services, logistics, and digital entertainment ventures.
Alibaba (NYSE:BABA) was part of 103 hedge funds’ portfolios in the first quarter with a total stake value of $3.3 billion. Appaloosa Management LP is the biggest shareholder in the company and has a position worth $814.050 million as of Q1. The company takes the second position on our list of best consumer discretionary stocks.
Alibaba (NYSE:BABA) is on a promising trajectory in its international commerce segment, which, while currently a smaller part of its overall business, shows significant potential for expansion. During the first three months of 2024, the company generated $3.8 billion from international commerce, accounting for 12% of its total revenue of $30.7 billion.
This segment is not only growing rapidly but is also Alibaba’s(NYSE:BABA) fastest-expanding area, with a remarkable 45% year-over-year increase. Over the past three years, the international commerce sector has seen an average growth rate of 32% annually, driven primarily by platforms like AliExpress, Trendyol, and Lazada.
Revenue from International Commerce Retail, excluding Alibaba’s B-to-B platform, surged by 60% in 2024 alone, owing to a substantial increase in orders through AliExpress’ Choice platform, which now represents approximately 70% of AliExpress’ total orders.
The potential for Alibaba’s (NYSE:BABA) international commerce to grow further is substantial, especially as the company incorporates artificial intelligence to boost its global operations. AI is proving to be a game-changer, helping merchants overcome language barriers, resolve customer disputes, and create product descriptions more efficiently.
Zhang Kaifu, who leads Alibaba’s (NYSE:BABA) AI development for international e-commerce, reported that in internal trials, AI tools have enabled merchants to increase their order volumes by up to 30%. The company’s unique advantage lies in its proprietary large language model, Tongyi Qianwen, which allows it to offer highly tailored support and further enhance growth prospects. With these advancements, Alibaba is well-positioned to expand its international commerce footprint significantly in the coming years.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)
