3. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Alibaba Group (NYSE:BABA) is a technology and internet retail company that operates e-commerce sites that serve both consumers and small business owners. In addition to e-commerce, Alibaba Group (NYSE:BABA) is also involved in cloud computing, logistics, digital media, and entertainment.
Merchants and small business owners use Alibaba.com to buy products such as clothing items, accessories, and shoes for reselling. AliExpress, on the other hand, is a retail site for mass consumers who can purchase all sorts of items such as appliances, office equipment, home improvement, and sports equipment, to name a few. It has over 150 million users and is present in 190 countries.
Alibaba Group (NYSE:BABA) is among the best e-commerce stocks to buy now and we say that because its platforms are used by more than 800 million people worldwide. It has a 40% share in the Chinese e-commerce market, as per estimates by the DBS Bank in Hong Kong. In the first quarter of 2024, the group reported revenue worth $30.73 billion, up 7% year-over-year. Its global e-commerce segment, Alibaba International Digital Commerce Group (AIDC), reported revenue worth $3.8 billion, up by 45% year-over-year. Combined orders for AIDC’s marketplaces expanded by 20%.
One may ask how Alibaba Group is managing to increase order volumes amid fierce market competition. The answer is simple, providing premium customer shopping experiences at the lowest price possible. The company’s revenue was driven by its new strategy, AliExpress Choice, accounting for 70% of orders placed on AliExpress. Choice is a premium e-commerce service offered by AliExpress that allows shoppers to source products directly from factories, shrinking the supply chain. Customers placing orders through Choice enjoy greater control over product selection, price, and shipping.
Despite macro headwinds and geopolitical turmoil in the country, analysts are bullish on the stock, and their 1-year median price target of $111.26 points to a 33% upside from current levels. Overall, BABA was held by 91 hedge funds at the close of Q2 2024 with total stakes amounting to $3.81 billion. As of June 30, Appaloosa Management LP was the largest shareholder with a position worth $756 million. Alibaba’s (NYSE:BABA) e-commerce segment is part of an industry that is expected to reach $18.81 trillion in 2029 from $8.8 trillion in 2024 at a compound annual growth rate (CAGR) or 15.8%.
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)”
