2. Alibaba Group (NYSE:BABA)
No of HFs: 166
Total Value of HF Holdings: $28.8 Billion
Alibaba Group is a Chinese multinational technology company that specializes in e-commerce and technology. The company was mentioned as one of the 10 best large-cap stocks to buy according to Ray Dalio.
Baron Opportunity Fund mentioned in an article that shares of Alibaba were up on sustained core commerce recovery benefiting from improved purchase frequency and spending per order
“Alibaba Group Holdings Limited is the largest retailer and e-commerce company in China. Alibaba operates shopping platforms Taobao and Tmall and owns 33% of soon-to-be publicly traded Ant Financial, which operates Alipay, China’s largest third-party online payment provider. Shares of Alibaba were up on sustained core commerce recovery benefiting from improved purchase frequency and spending per order. We believe Alibaba’s core business remains highly profitable, complemented by rapid growth in the cloud business and inflection in the Cainiao logistics and New Retail segments.”
While in a separate article, Rowan Street Capital mentioned that Alibaba’s integrated ecosystem connects and controls the whole value chain of branding, broadcasting, sales conversion, and sharing
“We first initiated a position in Alibaba back in May of 2018, and continued adding to our position as the stock continued slipping for the rest of the year as the company fell victim to a broader slowdown in Chinese economy as well as trade tensions with the U.S. Additionally, an earnings miss and a guidance cut, along with the broader market sell-off in December of 2018 cooled off the stock to $130 per share. At that price, we thought the stock was a ‘steal’ and added aggressively, building out our position to ~18% of the overall portfolio (please see below). Only two years following our investment, the stock has doubled in price as compared to the S&P 500 advance of +27% over the same time period.
Our initial interest in the company was sparked by the book “Alibaba: The House That Jack Ma Built”, which we had a pleasure of reading back in 2016. We had since followed the company for about two years before our initial investment. Patience is in our DNA!
The book refers to the “Iron Triangle” (E-commerce Edge, Logistics Edge and Finance Edge) as a key factor in making Alibaba such a dominant player in China’s e-commerce market. But it is the charisma of the company’s founder — his “Jack Magic” — that bound together the people and capital who would build on these foundations.
Alibaba’s integrated ecosystem connects and controls the whole value chain of branding, broadcasting, sales conversion and sharing. That’s very different from how it works in the U.S., where internet giants such as Amazon, Facebook and Alphabet are individually dominant in certain parts of the value chain, but not in the complete manner that Alibaba has achieved. None has an ecosystem that connects the entire marketing and commerce value chain from branding, broadcasting and sales conversion. Alibaba connects the entire value chain.
Alibaba shares now trade at a more than 25% discount after the Chinese government started going after Jack Ma over the last few weeks. It is hard to predict what will happen as China is a dictatorship, but given that they are willing to create the Chinese equivalents of U.S. tech companies, we don’t expect them to destroy Alibaba. If Alibaba were a U.S. company that’s facing no political risk, its market value would have been at least $2 trillion today.
