Since topping $190 a share towards the end of November, Alibaba (NYSE: BABA) traded steadily lower despite fundamentals supporting the opposite. Even as the Dow Jones closed at new highs on Thursday, Dec. 28, the Chinese e-commerce giant still must prove its worth to its shareholders.
Alibaba’s core business is e-commerce but it continues to grow quickly in the mobile front. Alipay barely gets much attention from markets, while in North America, investors willingly pay a premium for shares of PayPal (NASDAQ: PYPL) and Square (NYSE: SQ). In the second quarter, Alibaba connected Taobau, Tmail, and some Alipay functions. Just as the bundling of services and features in the Amazon (NASDAQ: AMZN) Prime membership drove consumption, Alibaba’s move should enhance the stickiness of its customers to the company’s site.
Alibaba’s Cloud revenue grew to $41.79 billion, up 92% Y/Y, and taking 3% market share (according to Jefferies). In Q2, revenue grew 99% Y/Y. In its recent annual cloud computing and AI conference, Alibaba announced Alibaba DAMO Academy. The company is committing $15 billion in investments over the next three years for this initiative. DAMO stands for "Discovery, Adventure, Momentum, and Outlook." By establishing R&D projects globally, through seven tech labs, Alibaba wants to attract talent and become better known worldwide, not just in China.
Takeaway
Alibaba’s multi-month stock support at $170 could follow with a rally to new highs, maybe to $200 a share. But that may happen after the company reports results in February next year.
