Alibaba Outlook: 3 Reasons Why BABA Stock Is Still a Buy

Stocks to buy

Alibaba (NYSE:BABA) stock didn’t have a great 2023, but 2024 is looking up. China’s e-commerce giant supports online transactions domestically and internationally. The company operates through a variety of subsidiaries, including Taobao, Tmall, AliExpress, and Alipay.

Unfortunately, Alibaba has received little positive press recently. From shelving its cloud computing unit’s IPO to falling behind in market capitalization to competitors, the company that was once Asia’s most valuable tech company, seems to have lost its way. Despite the bad press, Alibaba still has many positives. Here are three reasons why I think BABA is still a good buy.

BABA Stock and Cloud Computing

Alibaba’s e-commerce platform relies on Alibaba Cloud Intelligence Group for its vital cloud infrastructure. Alibaba Cloud serves as the cloud computing arm of Alibaba.

This cloud network not only provides the digital infrastructure to execute e-commerce transactions but also provides the necessary cloud services for other online businesses not engaged in e-commerce, including companies operating in the gaming, retail, finance, healthcare, and education industries.

Alibaba Cloud Intelligence Group had lackluster growth in early 2023, but its cloud business unit achieved record year-over-year EBITDA growth in Q2. In their Q3 earnings report, cloud revenue grew 2% Y/Y to $3.8 billion, driven by demand in public cloud products and services.

As China’s economy continues its slow recovery, Alibaba’s cloud computing arm could stand to benefit, not only as more users conduct transactions online but also as businesses invest more in their cloud infrastructure.

BABA’s e-commerce Potential

To date, Alibaba has amassed a user base of over 1 billion annual active consumers across its e-commerce platforms. Unfortunately, the company is facing competition from companies like Pinduoduo or PDD Holdings (NASDAQ:PDD) and ByteDance, the owner of social media platform, TikTok.

The increasing competitive environment has prompted the e-commerce giant to shuffle around management and heads of business units.

In late December, the Financial Times reported that Eddie Wu, currently the CEO of the entire Alibaba Group, will not only run the company’s Cloud Intelligence Group but also its e-commerce arms, Taobao and Tmall Group. This will hopefully encourage alignment between the tech group’s strategies and goals.

BABA Looks Good Here

The messy restructuring, increased competition, and shelved IPO of its cloud arm has left Alibaba’s stock scarred. The announcement that the company was not going to publicly list Alibaba Cloud Intelligence Group led to a rapid $20 billion loss in its market capitalization.

BABA’s shares ended 2023 down nearly 11%. Now, closing in on the end of January, Alibaba’s shares have plummeted an additional 10%.

This provides an immense opportunity for value investors who are looking to hold long-term. BABA’s shares currently trade at 7.7x forward earnings and 4.7x forward EBITDA.

These forward-looking multiples are quite low compared to other cloud computing and e-commerce giants, like PDD and Amazon (NASDAQ:AMZN).

If investors choose to allocate now, they could lock in a cheap price for a company that is still, despite the controversy, immensely valuable.

On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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