Chinese e-commerce giant Alibaba (BABA, Financial) generated more sales in merely 10 minutes on Single’s Day 2018 than Amazon (AMZN, Financial)'s estimated sales on its 2018 Prime Day. Moreover, the gross merchandise value, showing sales across various Alibaba platforms, reached a record $31 billion, surpassing last year’s figure of $25.3 billion. This exceeded any number generated in a U.S. shopping holiday.
In fact, the 24-hour sale event started off on a very strong footing, with sales hitting $1 billion in one minute and 25 seconds and around $10 billion in the first hour. Over the last three months, Alibaba shares suffered owing to investors' fears of trade war and of parking money in Chinese tech stocks. Yet, the recent development has cheered investors, and they are less concerned about the Chinese consumer appetite taking a hit.
Adding to the joy is that this is in line with the change in investor sentiment from growth to value plays. Although macroeconomic risks are still bothering Alibaba, the over 30% fall in the last three months has made entering this stock a cheap bet when compared to its nearest competitors.Ă‚
Coming to fundamentals, the company reported its second quarter’s earnings results on Nov. 2. The company’s revenue jumped 54% to $12.4 billion and adjusted earnings per share increased 12% to $1.40, easily beating Wall Street estimates of $1.07. Yet Alibaba slashed its fiscal year 2019 guidance to a range between $375 billion and $383 billion, from $395 billion projected earlier.
Considering the political landscape at the moment, Alibaba’s decline in guidance does not seem to concern investors that much. Moreover, looking at Alibaba from a long-term value perspective and at its recent price-earnings ratio history, the company seems to be offering an opportune entry point right now. The price-earnings ratio has declined to 41.74 from around 58.62 in July.
Also, Alibaba’s dominance in the Chinese e-commerce market, coupled with its entry into other international markets, calls for optimistic revenue forecasts for the near future and beyond. The company also expanded the Single’s Day event to the West, with AliExpress downloads surging in the U.S. and U.K.
Lazada, which operates in Southeast Asia and is majority owned by Alibaba, hosted its own Single’s Day sales event. Alibaba has also teamed up with Starbucks to deliver its products in 11 Chinese cities, through Ele.me, the Chinese giant’s food delivery platform.
The numbers seem quite appealing for Alibaba. It currently has an operating margin of 18.54% compared with the industry median of 3.64%, and the three-year revenue growth rate stands at 45.9% compared with the industry median of 2.2%. Also, Alibaba floats a forward price-earnings ratio of 28.17, while its peer Amazon is at 61.35.
While forward estimates are slightly above overall industry median, the company’s positioning and current industry scenario call for a bullish bet on the stock, from a long-term perspective. The 3-year Ebitda growth rate of 44.4% speaks volumes about the company’s potential when looking at the industry median of 3.9%. Hence, near-term pressure and short-term headwinds should not be used to judge the company’s future potential.
Disclosure: I do not own any of the stocks mentioned.
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