4. Alibaba Group Holding Limited (NYSE: BABA)
Number of Hedge Fund Holders: 135
Alibaba Group Holding Limited (NYSE: BABA) is ranked fourth on the list of 10 best cash app stocks to invest in with its fintech arm Ant Group, formerly Ant Financial. Ant Group is one of the world’s largest fintech companies. It operates the AliPay electronic payment service for Alibaba Group Holding Limited’s (NYSE: BABA) e-commerce platforms Taobao Marketplace, Tmall, and AliExpress. In addition, Ant Group offers asset management and money-market investment services. Ant Group was targeting a $200 billion valuation in August 2020, which would have been the world’s largest IPO.
In the first quarter of the fiscal year 2022, Alibaba Group Holding Limited (NYSE: BABA) reported an EPS of $2.57, beating estimates by $0.35. The company’s first-quarter revenue grew 34% year over year to $31.8 billion. Ant Group accounted for nearly $696 million to Alibaba Group Holding Limited (NYSE: BABA).
On July 27, Mizuho analyst James Lee maintained a Buy rating on Alibaba Group Holding Limited (NYSE: BABA) with a $285 per share price target.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Alibaba Group Holding Limited (NYSE: BABA) 14,129,399 worth more than $3.20 billion.
LongRiver Investments mentioned Alibaba Group Holding Limited (NYSE: BABA) in its Q2 2021 investor letter:
“There are a few new learning positions too, as I described I would make in my previous letter. I’ve written on my blog about Alibaba (here).
Alibaba’s mission is “to make it easy to do business anywhere” (“让天下没有难做的生意”). This subtle and elegant statement perfectly encapsulates Alibaba’s closed loop of services, which has the potential to assist merchants with every part of their business, from product design; to branding and marketing; to consumer acquisition and engagement; to logistics and fulfilment; to computing and IT; and even to consumer and business finance. Each of these services grew organically as Alibaba responded to merchants’ pain points, with the data shared between each arm of the business weaving one of the most comprehensive pictures of consumer behaviour ever seen. Merchants embracing Alibaba’s ecosystem must remake themselves around it to take full advantage of its potential. The reason to be bullish about Alibaba therefore isn’t just eCommerce; it’s the digitisation of China.
The reasons to be bearish, however, are that Alibaba faces an intensely competitive landscape and, now, regulators with a mandate to make it even more so. Times have changed, and it’s not clear to me what the future will look like, nor what it means for Alibaba’s future growth, profitability and competitive advantage.
Regulation:
The Chinese government has moved swiftly since it cancelled Alibaba’s sister-company Ant Group’s IPO last November to articulate and action a tighter regulatory stance towards Tech and Fintech. The former was codified by the State Administration for Market Regulation (SAMR) in a new and expansive set of anti-monopoly guidelines to specifically target internet platforms. The latter aims to reduce systemic risk to the financial system and is being managed by a quartet of financial regulators including the China Banking and Insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBOC).
We’ve had two major announcements in the last few days relating to Alibaba and Ant which give some clarity as to the scope and degree of intervention, but which also raise a lot of questions.
First, the SAMR issued an RMB18.2bn fine under its new guidelines to penalise Alibaba for forcing exclusivity on merchants. This practice (“二选一”) was brought into the spotlight in 2019 when Alibaba was sued by microwave maker Galanz for forcing it to choose between Alibaba and JD. The fine was less than the maximum allowable penalty (10% of revenues versus the 4% imposed) and less than the market’s expectations (as judged by the positive share price action which followed).
Alibaba’s CFO Maggie Wu also said on a call subsequent to the announcement of the fine that to make good, the company will also “reduce fees and charges to help merchants and brands; at the same time, also invest and spend more for them. So the impact [is] going to be both reflected in both top line and bottom line. So overall, we have reserved billions of RMB in additional annual spending to support initiatives in the future year”. If we read “billions of RMB” as in the range of RMB3-5bn, it would equate to just ~2-3% of the last twelve month’s adjusted core commerce EBITA.
Alibaba will take the fine and this lost income in its stride, and may have even planned to reduce certain fees anyway. But the ruling also means the end of a pressure tactic China Tech analyst Matthew Brennan (only somewhat facetiously) says “might be the key way Alibaba maintains its dominant position in eCommerce”.
Second, Ant has agreed with the financial regulators to restructure into a financial holding company, which will almost certainly require it to hold more equity against the loans it originates.
[Read the rest of the letter here]
