To The Moon

Alibaba in 2021: Is It Still a Good Stock Today?

Hi Everyone,

A VERY Happy 2025 to all of you! 🎉

As we step into a new year, I’d like to revisit one of the most talked-about investments in my portfolio—Alibaba. Today, I’ll share my analysis of this iconic Chinese company, often referred to as the “Amazon of China.”

Over the years, I’ve been asked countless times:

“Roy, why did you invest in Alibaba? Isn’t it risky to invest in a Chinese company? What about the potential for delisting?”

In a previous post, I mentioned buying Alibaba stock in 2021, initially at around $220 per share, and averaging it down to $172 per share today.

Am I still holding onto the stock? Yes.

Am I selling it? No.

While I don’t regret investing in Alibaba, one thing I do regret is buying it at a high valuation back in 2021. At the time, the price simply didn’t reflect a reasonable margin of safety.

Addressing the Risks

One of the most common concerns about Alibaba is the geopolitical tension between China and the US, which began escalating during the Trump administration in 2018.

Investors feared delisting due to transparency and audit compliance issues, and this fear was further amplified by ongoing political uncertainty. Despite this, Alibaba’s business fundamentals remained strong. The company continued to grow its revenue, generate free cash flow, buy back shares, and reinvest in its business operations.

As an investor, understanding and managing risks is crucial. If you’re uncomfortable with Chinese companies, it’s better to steer clear. However, if you see potential, proper portfolio allocation is key to mitigating exposure.

Who Is Alibaba?

Founded in 1999 by Jack Ma and Peng Lei, Alibaba is one of the world’s most influential companies. Its diversified business operations include:

1. E-Commerce:

• Taobao Marketplace (C2C platform)

• Tmall (B2C platform)

• Alibaba.com (B2B platform)

2. Digital Payments:

• Alipay, part of Ant Financial

3. Cloud Computing:

• Alibaba Cloud, providing storage, analytics, and AI solutions

4. Media & Entertainment:

• Investments in companies like the South China Morning Post

5. Logistics:

• Strategic investments in supply chain management companies

DCF Model and Key Metrics

Let’s dive into my DCF analysis. Using an 8-pillar approach, the results were 4 green and 4 red, but that doesn’t necessarily make Alibaba a bad company. Here’s what stood out:

Red Flags:

1. PE Ratio: Slightly above 22.5—manageable, but something to note.

2. ROIC Below 9%: This is partly due to Alibaba’s expansion into cloud computing, AI, and digital media, as well as regulatory hurdles.

3. Declining Net Income and Cash Flow: Challenges stem from increased competition and regulatory pressures, but I see these as temporary issues.

4. Dividend Policy: While dividends aren’t inherently bad, I’d prefer the capital be reinvested into growth or share buybacks.

Green Lights:

1. Share Buybacks: A big fan of their share repurchase strategy, especially at current valuations.

2. Revenue Growth: Despite headwinds, revenue is growing steadily, and I’m optimistic about their focus on operational efficiency and cost optimization.

My Take on Valuation

As companies grow larger, achieving double-digit growth becomes increasingly difficult. For Alibaba, I’ve kept my assumptions conservative while factoring in a margin of safety.

Based on my analysis, Alibaba’s intrinsic value remains reasonable. This makes it a viable option for dollar-cost averaging (DCA), even if short-term price volatility continues.

“Every investment is the present value of all future cash flows.”

Looking Ahead

As we move into 2025, I hope we all take the lessons of 2024 to heart and strive to make better decisions this year. Investing is a journey, and every experience—good or bad—shapes us into better investors.

Thank you for reading, and I appreciate your continued support. Let’s grow together in 2025!

Cheers,

Roy