Alibaba Group Holding Ltd (NYSE:BABA) is one of the fastest growing companies in the world. The stock is up more than 72% since the start of the year, outperforming S&P 500 and major tech stocks by a clear margin.
Alibaba Group Holding Ltd (NYSE:BABA) has huge potential, even bigger than Amazon. As of June 2016, over 51% of consumers in the US shop online. That means the ecommerce segment has a wide margin for growth. According to a report by IDC, total retail sales are expected to reach $27 trillion by 2020, while ecommerce sales will cross $4 trillion. Alibaba’s key advantage over Amazon is its dominance in China and Asia, where Amazon has a small footprint.
Alibaba Group Holding Ltd (NYSE:BABA) is betting on the omni-channel experience of the retail sector. Alibaba plans to use Big Data to track consumer activity and make the shopping experience frictionless and convenient. Alibaba calls this model “New Retail”. It has been able to increase its growth levels by optimizing its platform which resulted in a surge in paid-click growth due to product relevancy and content page personalization. Alibaba recently surpassed Baidu to become China’s top internet company in terms of digital advertising revenue.
Despite the massive growth of the stock, Alibaba Group Holding Ltd (NYSE:BABA) still has an attractive valuation. It trades around 25-times fiscal 2018 earnings estimates. The company expects 33% growth for fiscal 2018. This shows that the stock has strong upside potential. Alibaba and eBay have similar business models, but the former is highly undervalued when compared to the latter.
Last week, investment firm SumZero said in a report that Alibaba Group Holding Ltd (NYSE:BABA) shares could double in value over the next two years. The firm has a $250-$300 price target for the stock for the next two years. The report said that Alibaba’s compound revenue, operating income, and free cash flow could grow at an annual rate of 30% through 2021, which would result in Alibaba’s valuation to cross $1 trillion.
Retail sector in China is expected to growth at 5%-7% per annum for next six to eight years, amid a rising per-capita income after a major economic reform in the country. Ecommerce penetration which was at 12% in 2016 will soar to 33% in 2023, and Alibaba will be the sole benefactor of this massive opportunity.
In June, Alibaba Group Holding Ltd (NYSE:BABA) increased its stake in Lazada ecommerce platform to 83% to boost its presence in major Asian countries including Vietnam, Singapore, Thailand, the Philippines, Malaysia and Indonesia.
Even though Alibaba Group Holding Ltd (NYSE:BABA) Cloud platform doesn’t come even close to Amazon Web Services, its growth and revenue are rising rapidly worldwide. Alibaba’s Cloud is used by over 35% of major websites in China. Cloud revenue is mostly based on subscriptions, which is a lucrative and reoccurring revenue source. In the fourth quarter, Alibaba’s Cloud subscribers increased to 874,000 from 765,000 in the previous quarter, while revenue for the business division increased by a whopping 103% year over year.