Alibaba (BABA, Financial) moves more merchandise than any other company in the world with roughly $736 billion (4.8 trillion CNY) in gross merchandise volume for the fiscal year ending in March. To put that into perspective, in 2017, Amazon's global gross merchandise value (GMV) was estimated at just $320 billion. So even in a foreign currency, Alibaba moves more than twice as many goods.
Jack Ma at 54 and his team have built the world's largest online and mobile commerce company, and the most visited online marketplaces in China, Taobao and Tmall, which account for nearly three-fourths of its annual sales. Now he's retiring.
Barron's ran an article yesterday afternoon titled, "Jack Ma: No, China Didn’t Force Me Out of Alibaba," which only fuels more speculation of why he's quitting a company that he founded and grew to where it is today.
Ma taught English for a number of years before starting Alibaba in 1999 with the goal of transforming how Chinese people shop and pay for things. Now as China's richest man, he's revered by many with some going as far to place his portrait in their homes in the same way they put the God of Wealth, Caishen. It's an interesting phenomenon. Ma is five years younger than Bill Gates (Trades, Portfolio) was when he stepped down as Microsoft's chairman.
Ma has a 7% stake in Alibaba, which has a market capitalization of $411 billion, and has said that the trade war between China and the U.S. could last "maybe 20 years" and that "it's going to be a mess." Could either of these be the reason he is stepping down?
A trade war with a country that produces goods at the scale and cost China can was always a dumb idea. While prices may not rise due to market pressures, profit margins will almost certainly shrink on imports. Companies like Alibaba, which sell mostly to a domestic customer base, will continue to grow with or without Ma, despite any tariffs. China, as a nation, will continue to supply the rest of the world with products they desire and grow richer because of it.
It could turn into a situation like Microsoft. In 2014, when Bill Gates (Trades, Portfolio) quit Microsoft, the company was just starting to rise again after more than 10 years of stagnation. The stock was in the mid-$30s as fresh leadership took the helm. Today MSFT is over $110 a share, a 200% increase.
Ma has groomed the leadership team at Alibaba to carry on the good work after he leaves the company for good next year. More importantly, with the stock off 30% from its all-time high in June, it remains one of the best long-term bargains in the entire stock market.
It has undeniable advantages, though. One, Alibaba's China marketplaces boasted 576 million active buyers as of June, more than 40% of China’s total population.
Two, millennial shoppers think of Taobao as their first online shopping destination. These shoppers will only spend more and more over time as they become wealthier and have families.
Three, Alibaba will benefit from the ongoing shift in digital commerce market, with the company's Tmall platform driving traffic from Taobao mobile.
Finally, the other segments of Alibaba's business will also improve monetarily. It has a digital media and entertainment platform (8% of sales), a logistics service (3% of sales), and a cloud computing service (5% of sales) that are well positioned for growth. And, it has enough cash flowing through it to try as many new ideas as it wants, allowing it to shift with market trends well into the future.
Disclosure: I am not long/short any stock mentioned in this article.
