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What’s Driving Alibaba’s Valuations?

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Dec. 4 2020, Updated 10:53 a.m. ET

How different is Alibaba’s strategies from the rest?

Alphabet (GOOG) announced its partnership with JD.com in June 2018, worth $550 billion. The alliance could further consolidate Alphabet’s position against Amazon (AMZN) in the domain of product search and against Baidu (BIDU), China’s leading search engine.

JD.com’s (JD) partnerships with Alphabet, Walmart (WMT), and Tencent (TCEHY), China’s gaming company, should give it an edge over Alibaba (BABA) in China. However, Alibaba remains primarily focused on China’s 1.4 billion population with 800 million Internet users. In a way, Alibaba remains unscathed from the potential hazards of the trade war with China.

Taobao’s strong user engagement, Tmall’s B2C (business-to-consumer) market share gains, and Hema’s growing network continue to drive Alibaba’s revenue growth. Revenue growth for the core commerce segment is driven by the following:

  • the newly formed partnership with Starbucks (SBUX) to explore China’s growing coffee market
  • the acquisition of Ele.me
  • Cainiao Network’s logistics joint ventures
  • Lazada’s international expansions

Alibaba’s cloud computing partners include Minsheng Bank, China Communications Construction Group, and IHG (InterContinental Hotels Group). Youku joined hands with China Central Television (or CCTV) to stream the 2018 FIFA[1. Fédération Internationale de Football Association] World Cup in China.

Alibaba’s AI-driven voice assistant Tmall Genie recorded sales of 5 million units in the second quarter of 2018 within a year of its launch. Alibaba intends to buy a minority stake in China’s leading advertising screen network Focus Media.

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How do Alibaba’s forward valuations look?

Analysts have forecast revenue of 397.3 billion yuan, 550.1 billion yuan, and 719.6 billion yuan for Alibaba for the fiscal years ended March 31, 2019, 2020, and 2021, respectively. The stock has fallen 5.4% year-to-date, last closing at a 7% premium to its 52-week low price.

The stock has “strong buy” and “buy” recommendations from 16 and 27 analysts, respectively. Only one analyst has given it a “hold” recommendation. Its projected PE ratios are 29.2x, 21.5x, and 16.4x for fiscal years ended March 31, 2019, 2020, and 2021, respectively.

We’ll look at the valuations for Amazon, JD.com, and Walmart in the next part of this series.

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