Stock of the Week: Alibaba

Andrew Willis:

In the Western world, it's easy to associate Alibaba BABA with a China-based online marketplace for goods that take forever to arrive in the mail. But that's because we're not in China. If we were there, we'd probably be interacting with Alibaba all the time, not only on their marketplaces but also with their cloud computing, media and entertainment, and online to offline services like physical retail. The company is so common in China that, according to QuestMobile, as of September 2021, of the 1.2 billion people online in the entire country, 953 million of them were active Alibaba consumers.

Such great market coverage doesn't come without a cost, however, as increased compliance with antitrust laws in the country has contributed to reduced market monetization rates, according to senior equity analyst Chelsey Tam. More recently, Alibaba's media and entertainment business had to adjust to new regulations that govern live streaming.

Do Alibaba's regulatory hurdles outweigh a monopolistic hold on nearly a billion consumers? Consider the advantages of Alibaba's position. We note that the recent live-streaming regulations do not contain specific penalties if platforms are found to be negligent. The live streamers themselves face much greater risk. Alibaba did face a fine in April of last year over antitrust concerns of around a few billion U.S. dollars. A month prior, the company was making around USD 110 annually from merchandise sales per user. Did the fine work? Worth noting, the company's retail business reported 90% customer retention the following September.

For Morningstar, I'm Andrew Willis.

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