It may seem tough to form a bull case for Alibaba (NYSE:BABA) given the headlines in the past couple of years. Its regulatory woes have weighed down its stock, while its e-commerce business suffered due to recent Covid-19 lockdowns in China. The good news is that the Covid 19 restrictions have eased significantly, and the regulatory issues have actually had very little effect on the company's businesses. Thus, I believe the sell-off still presents an excellent bargain opportunity, even as it has already begun the rebound.
Anti-trust issues are not a concern
It seems China's anti-trust regulators still aren't finished with their tech crackdown as they recently fined several tech companies, including Alibaba, for violations of disclosure rules. The announcement sent Alibaba's stock down another 15%.
It's clear that China's anti-monopoly committment will continue to be a thorn in Alibaba's side. Nevertheless, the haircut in its price still isn't justified based on the limited real impact of the regulatory crackdown.
Alibaba will submit earnings results for its first quarter of fiscal 2023 in August, and I believe it will likely perform much better than expected due to overblown regulatory fears. The expectations are remarkably low for Alibaba's upcoming quarter, suggesting that a post-earnings rally could be in the cards.
Additionally, the e-commerce performance is likely to be highly encouraging going forward as the economy recovers. Certain segments in the company's domestic e-commerce business, such as wholesale and direct sales, are already witnessing robust growth of late.
Alibaba has stood the test of time
Alibaba has been one of the leading performers in China over the past couple of decades. During this time, it has built a massive e-commerce empire that continues to grow incredibly. Its e-commerce businesses in Tmall and Taobao have served over 900 million customers in the past year and generated a whopping $93.5 billion in sales.
The company's tremendous success in e-commerce has helped it spread its wings in related industries, including cloud computing, fintech and others. For instance, Ant Group, Alibaba's fintech arm, owns over 50% market share in the Chinese online payment space and leads other areas in online lending. The company's logistics platform in Cainiao is now a leading player in the space, while Alibaba Cloud has been a revelation for the group.
Once the Chinese economy bounces back from the lockdown state, Alibaba's overall performance should improve. Over the long term, the Chinese e-commerce industry is set to continue on the road toward massive growth. Sales from the industry are estimated to double from fiscal 2019 levels to a mind-boggling $3.8 trillion by 2025.
AliCloud has a 37% stake in the Chinese cloud space, making it the largest player in the Asia-Pacific (APAC) region. It's likely to maintain its stellar positioning in the market, which is still growing rapidly, due to the tendency of consumers to be attracted to incumbent giants. Moreover, it is also expanding data centers across the APAC region with operations across Thailand, South Korea, Indonesia and the Philippines. It also launched in Germany and Saudi Arabia with multiple data centers.
Furthermore, the enterprise announced the formation of a new brand called Lingyang, which effectively positions itself as a top data intelligence provider. Consequently, AliCloud will now support new features such as the marketing cloud, analytical cloud and other related capabilities. With the addition of new capabilities and features, the company will have more opportunities to grow its market share.
Final word on Alibaba
Alibaba's stock continues to trade at a beaten-down valuation amidst multiple market headwinds. Nevertheless, the resiliency of its businesses cannot be denied, as its brands play an integral role in the lives of the Chinese consumer and business. Its businesses will continue to thrive as the Chinese market bounces back in the upcoming quarters. Therefore, I maintain my bullish thesis on Alibaba$Alibaba(BABA)$
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