Wednesday, December 31, 2014

Alibaba's Year

"Price is what you pay. Value is what you get."

-Warren Buffett

Welcome to The Golden Sense! 2014 has been a big year, and no company had a bigger year than Alibaba Group Holding Ltd. The e-commerce behemoth became the biggest initial public offering ever as it raised $25 billion in September of 2014.

Alibaba operates a ecosystem platform for third parties on the Internet. As a platform, the company provides the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the web. Essentially, Alibaba is a eBay, PayPal, Amazon, Amazon Web Services, and many more rolled into one.

Alibaba, led by Jack Ma, is a company that is continually expanding. They now operate a multitude of different platforms:

  • (a wholesale marketplace for international consumers).
  • Taobao Marketplace (China’s most popular mobile commerce application).
  • TMall (China’s largest retail platform, which features goods sold directly from brands).
  • (the leading online wholesale marketplace for domestic Chinese small businesses).

In addition to all this, Alibaba also runs Aliyun, a cloud services and infrastructure provider. According to SEC filings, Alibaba made $102 million from cloud and infrastructure services, which is up 26% from last year. That’s not quite as fast as Amazon Web Services, but it’s impressive nonetheless. The company also spun off Alipay, which is like a PayPal service that processed astonishing $623 billion digital payments during the fiscal year 2014.

Alibaba has also invested a huge amount of money into the U.S. market this year. It recently opened 11 Main, an e-commerce platform for high-end boutique products like clothing, home goods and jewelry.

Most American consumers aren't familiar with Alibaba yet. The company's success has been uniquely Asian thus far. Amazon, Walmart, Zappos and many others dominate the online retail market in the United States. Yet, Alibaba's success isn't dependent on the American marketplace. It is going to build on the enormous Chinese market which is three to four times larger than American market. 

Unlike the American consumer, the American investor has experienced a completely different story. Alibaba Group Holding has created an investment vehicle on the NYSE that allows the average American to profit from swelling Chinese market. Their ticker "BABA" can be purchased through any investment broker. As you may have heard, the investment has had a successful start.

Alibaba's initial public offering opened at a price of $68 per share. The shares popped 38% to $93 on its first day of trading. As of the end of December 2014, "BABA" trades between $105-110 a share.

Investors are giving "BABA" a lofty valuation, but the growth potential is there for all to see. Many analysts think "BABA" will be trading at $130 a share within the next three months. These projections are based on the company's recent performance. In November, Alibaba saw incredible sales on "Singles Day". China’s anti–Valentine’s Day has handily surpassed the U.S.’ s Black Friday as the world’s most lucrative online shopping day, and with the company passing $9 billion in sales in 24 hours, it has become one of the most profitable manufactured holidays in history.

Alibaba isn't a speculative company, they're the real deal. The owners are Chinese and they understand the Chinese consumer. This will help the company beat off foreign competition and dominate the Chinese market.

Personally, I am putting my down on this company. I am expecting the share price to increase after their next earnings release. China is a country with over a billion people in it. Enormous wealth is being created and the population is ready to start spending some of their new found money. Alibaba provides the perfect marketplace to do so.

As Alibaba profits, I hope to profit too.

Over and Out

T. Norman