3D·

Deep Dive: Alibaba ($BABA) 🇨🇳 - The biggest value trap or an opportunity of the century?

Hello community,

Since the high in 2020, the Alibaba share price has fallen massively. Sentiment is at rock bottom. But that is precisely what makes an in-depth analysis so exciting. Is the fear exaggerated or justified?

Let's take a deep dive into the figures and the story behind the Chinese giant.

WHAT'S BEHIND ALIBABA $BABA (-0.19%) 🇨🇳

Alibaba is much more than just an online store. It is a huge ecosystem that is currently reinventing itself and splitting into six parts:

🔵 Taobao & Tmall GroupThe e-commerce centerpiece.

🔵 Cloud Intelligence Group: The AWS of China and the basis for the future of AI.

🔵 Cainiao Smart Logistics: The logistics network.

🔵 Other divisions: Local Services, Global Digital Commerce & Entertainment.

ALIBABA IN FIGURES (TTM) 📊

The real story is in the key figures - where stagnation meets massive profitability.

💰 Turnover TTM~$130 bn (+5% YoY)

👥 Annual Active Consumers: ~1 bn (stable)

☁️ Cloud revenue: ~$15 bn (growing & profitable again)

💸 Free cash flow (FCF) TTM: ~$21 bn (extremely high cash generation)

🏦 Net cash position: ~$60 bn (massive war chest)

✅ P/E ratio (forward): ~8 (historically extremely favorable)

OPPORTUNITIES & RISKS

THE UPSIDE 🟢

🟢 Value of the individual parts (SOTP): The breakdown makes the true value of the divisions (esp. cloud) visible.

🟢 Massive share buybacks: Management uses the low share price to aggressively create value for shareholders.

🟢 AI potential (NVIDIA validation): NVIDIA CEO Jensen Huang recently described Alibaba's AI model as "world class". They have mastered the complete 'AI stack' (cloud, data & models).

THE RISKS 🔴

🔴 Extreme competitive pressurePDD Holdings (Temu) and Douyin (TikTok) are aggressively attacking market shares.

🔴 Regulatory sword of Damocles: Uncertainty regarding intervention by the Chinese government remains the biggest risk.

🔴 Macro weakness: The weak Chinese domestic economy is weighing on the consumer climate.

CONCLUSION & MY STRATEGY ⚖️

Alibaba remains a complex bet with valid risks, from competition from PDD to unpredictable regulation from Beijing.

For me personally, however, the long-term opportunity that lies in the cloud and AI division outweighs the risks. Today's valuation mainly prices in the risks, but hardly the enormous potential that can be leveraged through the restructuring and the AI technology validated by Jensen Huang.

The investment thesis:

My investment is a bet on the re-rating of the group, driven by the future monetization of cloud & AI, while the massive cash position and share buybacks provide downside protection.

My action:

I will systematically build my initial position into one of my core positions over the coming months and years. For me, this is a clear "buy & build" investment for the next decade.

How do you see it?

Is the risk too high or is this the definition of an anti-cyclical opportunity?

Looking forward to the discussion! 👇

#alibaba
#baba
#stockanalysis
#tech
#china
#ecommerce
#cloudcomputing
#valueinvesting
#künstlicheintelligenz

21 Comments

Smudo@Smudeo

Alibaba's century was from 2018 to 2020, but now it's more of a private investor gamble. After the political crisis with Mr. Ma, you can no longer invest there

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Der Spekulant@Derspekulant1

@Smudeo Many experts disagree, including Jan Beckers & Jensen Huang. Since the beginning of the year, XI has often met with CEOs from the Chinese tech industry. They have realized that they will lose the AI race by intervening in the market. Jack Ma was also represented there. Hence the recent rise of Alibaba despite the poorer figures.

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Memo0606@Memo0606

buy and leave
will buy more tomorrow!

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Der Spekulant@Derspekulant1

@Memo0606 with me again with the next savings plan 🙌

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Maximilian@Max095

@Memo0606 Under your last $9988 purchase, you wrote no long-term purchase for a maximum of 6 months 🧐

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Memo0606@Memo0606

@Max095 have changed my mind... could become the new amazon in asia

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Maximilian@Max095

@Memo0606 that would be disturbed 🚀

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Chris@Multibagger

If I want to cover all areas with one share, I favor $AMZN the original! I'm invested there and continue to increase via a savings plan. When my $GOOGL position is full in 2-3 months, the roundup at TR will probably go in there too.

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Der Spekulant@Derspekulant1

@Multibagger
The comparison with Amazon falls short because it ignores the all-important geographical component.

Instead, one should say that Alibaba ($BABA) is the "Amazon of China", just as Mercado Libre ($MELI) is the Amazon of Latin America, Coupang ($CPNG) is the Amazon of South Korea and Sea Ltd ($SE) is the Amazon of Southeast Asia.

The key point here is the market they address: The TAM (Total Addressable Market) for e-commerce and cloud in China/Asia is already larger than Amazon's in the Americas and continues to grow strongly.

While Alibaba is under pressure from PDD and Douyin in e-commerce, its cloud division is the clear market leader in its home market - an area in which AWS and Azure have hardly any relevance in China.
So it's not about "BABA vs. AMZN", but about the strategic question: In which economic region and in which growth market do I want to be involved as an investor? And there is still a lot of upside potential in China as there are not as many hyperscalers there as in the USA.

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Chris@Multibagger

But $AMZNn is not just the market leader in the USA and you would have to see more than just the USA as an addressable market. In any case, my analysis makes me more bullish on $AMZN because I don't see as many opportunities for government intervention.

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Der Spekulant@Derspekulant1

@Multibagger
Sorry, but this is a classic apples-and-oranges comparison and the argument about "state intervention" is a look in the rear-view mirror.

While private investors are still analyzing the risks of yesterday, the situation in China has fundamentally changed. Xi is actively supporting the tech scene again because Beijing has realized that otherwise it will lose the AI race to the US.
This is not speculation, this is the assessment of people who should know: NVIDIA CEO Jensen Huang and tech investors such as Jan Beckers see enormous potential in China again right now for precisely this reason.

So it's not about whether Amazon is also strong in Europe, but about comparing an established player in a mature market (AMZN) with an undervalued giant in a market that is currently undergoing a political turnaround (BABA). These are two completely different investment cases.

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Der Spekulant@Derspekulant1

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Chris@Multibagger

@Derspekulant1 You know, I'd like to ask you something and I mean it in all seriousness. I really enjoy exchanging ideas here and I also find some of your posts very informative. But if you end a post with, how do you see it, then you should simply accept that people see it differently and not portray them as the last fool who can't follow your reasoning. I disagree, you don't have to share it and you are welcome to invest in $9988 and maybe both will work. Or $9988 will work better. We'll see. But for me, discussing doesn't mean that I have to bring someone into line with me. Sorry, but I need to get that out now. And there will always be state intervention in China, as is currently happening again in the automotive industry. There is no such thing as uncontrolled private expansion. A company in China is only given as much freedom and growth as it benefits the state. If another company is needed more, barriers and restrictions are introduced to promote this.
In addition, Chinese companies are always subject to a significant valuation discount.
I have nothing against tech investments in China, I myself am invested in $1211, $1810 and also $3750.
So let's just see which value has performed better in a few years. I don't begrudge you 100%, but I won't be investing in $9988 for the long term.

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Der Spekulant@Derspekulant1

@Multibagger
Thank you for the detailed answer. The point here is not to attack anyone personally, but to analyze an investment thesis cleanly and separate it from general market opinions.

Let's go through your points:

- Government intervention & the auto industry: you cite the auto industry as a current example of negative intervention. This is a fundamental misunderstanding of the situation. The current government measures are protectionist in order to protect their own e-car champions (like BYD, in which you yourself are invested) AGAINST foreign tariffs. This is the exact opposite of a "crackdown" on your own industry. It underpins my thesis that Beijing is once again actively promoting its national champions in order to survive in global competition.

- Valuation discount: You say that Chinese companies are subject to a valuation discount. Correct. But this is not news, it is the basis of the whole counter-cyclical thesis. It is precisely this massive discount, which prices in yesterday's political risk, that creates the asymmetric opportunity when the situation - as described by experts such as Huang and Beckers - returns to normal.

- Your own investments: You warn against government intervention, but you yourself are invested in Meituan ($3750) - one of the main targets of the tech crackdown of 2021. This shows perfectly that you cannot generalize here, but have to evaluate each case individually - exactly what I do in my Alibaba analysis.

Let's cut to the chase: this remains a classic apples-to-oranges comparison.
My post is a specific bet on Alibaba's turnaround, supported by an extremely favorable valuation and a changing political stance - a thesis that, by the way, is in line with the assessments of experts who are directly in the market.
This has nothing to do with a general discussion about Amazon. These are two completely different investment cases on two completely different continents.

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Chris@Multibagger

@Derspekulant1 You made a mistake with the values. I am not invested in $3690. There's something that doesn't fit with your value abbreviation.
Government intervention in the case of $1211 is directed against the company. They will have to adjust their payment practices towards suppliers. As a result, they will have to take on more debt, which will put pressure on growth and margins.
And yes, there are 2 different investment cases in the same industry. I'm with you on that. And you find the Chinese one more interesting and I find the American one more interesting. That's completely ok with me.

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Der Spekulant@Derspekulant1

@Multibagger
Right, I mixed up the abbreviation, my mistake. The point referred to Meituan ($3690), one of the main targets of the tech crackdown.

The adjustments to payment terms for suppliers you mentioned are an industry-wide operational regulation. This is very different from a politically motivated, existential investigation that calls into question the entire business model, as we have seen in the past. This is exactly the kind of differentiation you need to make when investing in China.
But that takes us away from the real point. My original analysis was a specific thesis on Alibaba, based on an asymmetric risk/reward assessment. It was never a comparison with Amazon.

You see the case differently and favor the American market. As you say, that's perfectly okay. Let's leave it at that. Good luck with your investments.

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Chris@Multibagger

@Derspekulant1 I wish you the same with many 100% plus.

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Der Spekulant@Derspekulant1

@Multibagger Thank you!

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-@0000

I like listening to this one about China. https://www.youtube.com/watch?v=yaFBAtqUqhw&t=921s

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