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Alibaba stock price prediction 2025: BABA's PE is only 33 times?

alibaba

 Review Alibaba's digital economy has created a transaction volume of 1 trillion US dollars. 

The revenue and profit growth in the past few years have been solid, relative to Tencent (700), Pinduoduo (PDD), and JD.com (JD).
　　

Why is the valuation of Alibaba (BABA) relatively undervalued, PE is only 33 times?

　　
Is there a chance to catch up?
　　
Is Alibaba (BABA) an ideal investment?

target value

Compared with Tencent, Alibaba's business revenue sources are relatively concentrated, and most of them are related to online shopping. 

Although the company's business includes core business, cloud computing, digital media and entertainment, innovative business, and others, for 2020 earnings, cloud computing only accounts for 8% of total revenue, digital media, and entertainment 5%, and innovative business and others account for 1% of these revenues. 

Businesses that account for a fraction of the business are losing money. As for Alibaba's remaining 86% of its revenue, it is all about the industrial chain of online retail, wholesale, and logistics.

revenue

 Alibaba's (BABA) 2020 financial report performed well. Alibaba's annual results for the year ended March 31 exceeded market expectations, and non-GAAP net profit was 132.48 billion yuan, an increase of 42% year on year. 

Even if the first quarter was affected by the new coronary pneumonia, Alibaba's non-GAAP net profit growth still increased by 11% year on year, and the results were very good.

net income

Looking back at Alibaba's revenue in the past few years, revenue growth in fiscal years 2018, 2019, and 2020 was 58%, 50%, and 35%, although revenue growth slowed, it is normal for Big Mac companies. Does it have "vital elements"?

 I sorted out Alibaba's segment business revenue growth from 2018 to 2020 and found that except for the innovation business and other growth that accounted for 1% of Tencent's revenue, the growth of other parts has slowed down. 

Despite this, Alibaba's cloud computing business still grows by 62%, and this part of the business still has great potential. Market research agency Canalys announced the fourth quarter of 2019 China's public cloud service market report. Alibaba Cloud ranked first in the market. The share rose from 45% in the third quarter of last year to 46.4% in the fourth quarter, far surpassing the second-placed 18% of Tencent Cloud.

china cloud

Judging from Alibaba's performance trends, compared with other loss-making businesses, the cloud computing business has the opportunity to turn losses into profits as quickly as possible. The era of cloud computing has only just begun, and the cloud computing business will still have great growth in the future. 

In the context of global water release, many Chinese Internet companies have reached record highs. But Alibaba seems to be slightly inferior, its price-earnings ratio is only 33 times, while Tencent has reached 45 times. Alibaba's revenue and profit growth are steady, and PE is cheaper than in other industries. Is it a good investment?
　　
Next, let me talk about Ali's prospects and dilemmas Tencent (700), Meituan (3690), JD.com (JD), and Pinduoduo (PDD) have soared. But Alibaba's stock price has stagnated, which reflects the fact that the market is worried that Ali's influence in the e-commerce industry will decline.
　　
WeChat completely monopolizes China's online social platforms, Momo, Tantan, and the rear lights are completely invisible, but there is no monopoly on Alibaba's business compared with WeChat. Although Alibaba has many businesses, China ranks first, For example, Taobao, Alipay, Alibaba Cloud, but the competitors facing these businesses are also very strong.

Alibaba GMV

According to Goldman Sachs data, Alibaba’s e-commerce market including Taobao and Tmall’s GMV market share dropped from 75% in 2017 to 67% in 2019, while Pinduoduo’s market share in alliance with Tencent increased from 2% in 2017 Rose to 10% in 2019. As of the end of March 2020, Alibaba’s annual active consumers had increased by 15 million from the end of last year. Although it sounds good, JD.com and Pinduoduo are stronger. In the last quarter, JD.com increased by 25 million, and Pinduoduo increased by 43 million.

In terms of express delivery volume, the report pointed out that the express delivery volume of the Alibaba e-commerce platform accounted for the proportion of Zhongtong express delivery business, which fell from 80% in 2014 to 56% in the second quarter of 2019, and no further data was disclosed. 

As for the proportion of pieces with a lot of fights, it rose to 20%. Here, we can deliberately burn a lot of money, plus WeChat traffic, which helped Pinduoduo to erode the market share of Ali's e-commerce. Also, the Douyin parent company, the Chinese science and technology giant byte beat, established a first-tier e-commerce department. 

According to media reports, after July 1, Douyin is no longer linked to Taobao, which means that the huge traffic of Douyin will not be sent to Taobao. The two giant companies have the opportunity to change from partners to rivals.

Tencent has rapidly developed a new model of social e-commerce for small programs and has a slice of decentralization in the field of e-commerce. Therefore, Alibaba's e-commerce is in the situation of being enemies. 

Next, let me talk about Ali's trend analysis. Recently, another reason for Alibaba’s pressure was due to market worries about SoftBank’s selling off 25% of Alibaba’s shares, and SoftBank Group’s Sun Zhengyi expressed his withdrawal from Alibaba (BABA).

 The board of directors said that SoftBank will hold Alibaba as much as possible. The whole issue is not with Alibaba. It is just that when the company's stock price is high, Softbank may be able to sell less and have enough funds to solve the urgent problem. 

Everyone will also be more tolerant of Alibaba's short-term negative factors, and more people are willing to accept the goods, but when the company's performance relative to its peers is ordinary, the negative news becomes obvious in the eyes of investors. Someone asked whether the increase in the valuation of Alipay’s parent company Ant Financial would help Alibaba’s share price?
　　
Reuters quoted sources as saying that Ant Financial is selling shares in a non-public way, with a valuation of US$200 billion. Alibaba holds 33% of Ant Financial. If Ant Financial is listed, will it have a positive impact on Alibaba's stock price?
　　
 I believe that even if there is, it will not be too obvious. For example, China Ping An (2318) also holds 41% of Ping An Good Doctor (1833).
　　
Ping An Good Doctor (1833) was not profitable, but everyone only paid attention to its holding of HSBC (00005).
　　
As for whether the share price of Alibaba (BABA) can regain momentum, I will look at two major factors. First, it depends on whether Alibaba’s core business outside the business can maintain high growth and bring a new bright spot to the market. The second is that it depends on the process of the Hang Seng Index's inclusion in Alibaba (BABA), allowing new funds to drive the stock price. 

The first point is more difficult to predict, and I cannot estimate it. As for the second point, the HSI includes Alibaba as a constituent stock of the HSI. If the Hang Seng Index is inspected in August and accepts Alibaba to be included in the index, and the weight reaches the upper limit of 5%, the Goldman Sachs Index expects that 1.3 billion US dollars will passively chase Alibaba. Alibaba (BABA) will also be revalued. Alibaba's (BABA) valuation will be closer to companies such as Tencent. 

Of course, there is not much chance of keeping up completely in the short term, but it is not difficult for Ali to increase 5-10% this year. This reminds me of one thing. When Alibaba IPO, most of the market analysis was one-sided, Alibaba ( BABA) will outperform Tencent. 

Alibaba's PE is much lower than that of Tencent. Alibaba's revenue and profit growth also outperformed Tencent. But it turns out that when views are one-sided, they usually don't come true. When this happens, you have to be careful about the reasons. Why is a company's PE cheap?
　　
 is not unreasonable, I don’t think about why, but I think Alibaba is not bad. The growth of Alibaba's (BABA) cloud service is worth looking forward to. The new crown epidemic will accelerate the demand for Internet services. Alibaba can also benefit from it, and its performance is expected to be better than that of the old economic stocks.
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