Is BABA Finally A Buy?

February 22, 2024

Alibaba offices (credit: Windmemories)

Shares of Alibaba (BABA) could be on the verge of a reversal after being stuck in a downtrend since reaching an all-time high of $319 in late October 2020. Just days prior to that all-time high, Jack Ma took to a Shanghai finance summit to lambaste China's regulatory system, accusing it of inhibiting innovation. And just 2 months later, China's market regulator was in the throes of investigating Alibaba, alleging it was operating under monopolistic practives, ultimately leading to the demise of the planned November 2020 IPO of Ma's fintech operation, Ant, and a hefty $2.8B fine in April 2021.

BABA rebounded from a multi-year low of $57 in 2020 to $121 in January 2023, ahead of the highly anticipated spinoff of Alibaba's cloud business last March. But the company cancelled those plans, which sent BABA tumbling 35% over the subsequent 2 months. Then in November, regulatory filings revealed Ma's plans to sell 10B shares worth $870M, sending prices down another 20% to $67 last month, although Ma ultimately decided not to cut his stake.

During that time, Alibaba faced increasing competition from Temu which briefly became China's largest e-commerce company by market cap, despite having a fraction of the revenue of Alibaba. Couple that with a slowing Chinese economy and a languishing Shanghai Composite Index, which dropped about 24% since last year.

Now the trend appears to be reversing as Chinese stocks rebounded 15% since officials announced they were considering a 2 trillion yuan ($278B) stimulus plan to help stabalize the stock market after stocks revisited lows unseen since early 2020.

And Alibaba leadership has been taking steps to add value for shareholders:

- BABA paid its first annual dividend of $1 per share to shareholders on January 18.

- Jack Ma acquired $50B shares of BABA and co-founder Joe Tsai, through his family business, Blue Pool, acquired $152M worth of shares, for a combined $202M in shares.

- The Company increased share buybacks in Q4 2023 to $2.9B and announced the approval of up to $25B in 2024 buybacks.

- Q4 and year-end reports suggest growth is slowing but revenues still climbed 5% on the year.

From a long-term technical perspective, last month's price action indicates a potential reversal of the 3-year downtrend, suggesting prices could move higher over the next few months. If the Chinese stock markets continue their recent upward trend and if the People's Bank of China continues cutting key prime loan rates as it did this week, we expect BABA to continue to be a strong buy at current price levels.