Opportunities Open for Alibaba
A strong network effect makes for a wide moat for this 4-star stock.
Alibaba’s (BABA) investor day last week helped reinforce two key tenets of our investment thesis: (1) Alibaba can still grow even against an uneven economic backdrop, and (2) Alibaba is just starting to scratch the surface of monetization opportunities across its various marketplaces and platforms.
Most of our discussions with investors following the event have focused on management’s five-year targets, including 1 billion annual active consumers and CNY 10 trillion in gross merchandise volume, or GMV, from its China consumer business by fiscal 2024 (implying a five-year GMV compound annual growth rate of almost 12%). While the active customer goal is aligned with our model, the GMV target is below our CNY 12 trillion estimate heading into the event. We believe some conservatism is warranted, given uncertainty over the impact of trade war rhetoric on Chinese consumer confidence. However, we still view the Chinese consumer as healthy--backed by wage growth, solid personal balance sheets, and access to consumer credit--and see CNY 11 trillion as a reasonable target for fiscal 2024 after factoring in wealth creation among Tier 3-5 cities and rural customers.
R.J. Hottovy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.