Alibaba Stock: Is It a Good Buy?
Since its founding in 1999, Alibaba has grown exponentially. What began in China as an effort to give small businesses everywhere an advantage by connecting them to manufacturers who could provide competitive pricing has become an expansive network of digital products and services.
Alibaba has made history a few times. In 2014, it delivered the world’s biggest initial public offering. Earlier this year, it faced a record-making $2.8 billion antitrust fine from the Chinese government for business practices that were deemed to be monopolistic. Regulatory officials in Beijing have scrutinized technology companies as of late, asserting that they’re placing a higher value on profits than on being socially responsible.
What Is Alibaba?
Alibaba is a Chinese company focused on e-commerce, retail and technology. Its initial product, Alibaba.com, allows Chinese manufacturers to export their goods to businesses in bulk at a deeply discounted rate, all over the globe.
Apart from its flagship product, Alibaba Group Holding Ltd. — Alibaba’s parent company — owns or has a stake in:
- South China Morning Post
- China’s biggest shopping website, Taobao.com
- A PayPal competitor called Alipay
- Sina Weibo, which is China’s version of Twitter
- Youku Tudou, essentially the closest thing China has to YouTube
- Online marketing services
- Cloud computing
How Does It Work?
In Alibaba, companies around the world have a centralized resource for many, if not all, of the functions needed to run their businesses. Although Alibaba’s initial offering was to unite sellers and manufacturers, it has expanded to include marketing, logistics, cloud support and other services. Ming Zeng, Alibaba’s former chief strategy officer, described it this way in a Harvard Business Review article: “Alibaba does what Amazon, eBay, PayPal, Google, FedEx, wholesalers and a good portion of manufacturers do in the United States, with a healthy helping of financial services for garnish.”
Anyone from around the world can contact a professional on Alibaba and receive a quote for an array of products and services. From there, the buyer and seller negotiate toward an agreed-upon price. Alibaba is the engine behind many of the everyday purchases made in the U.S. and other countries. For example, if you buy a notepad for $9.99, it’s possible that the person or company that made it was able to do so at a reasonable profit because of an advantageous price obtained on Alibaba.com.
How Does Alibaba Make Money?
The majority of Alibaba’s revenue comes from online advertising on its various websites. With a self-reported 279 million active buyers and 8.5 million active sellers each year, and 14.5 billion orders streaming in every year, Alibaba has the benefit of a huge audience to advertise to.
The company also makes commissions on sales, fulfillment and online payments.
How Much Does Alibaba Earn?
Alibaba’s fiscal year ends on March 31. For the 2021 fiscal year ending March 31, 2021, the company reported earnings of $28.6 billion. That’s a 64% increase from the prior year.
How Much Is Alibaba Worth?
Alibaba has been a publicly traded company since its initial public offering in September 2014. The company currently has a market capitalization of approximately $536.95 billion.
Is Alibaba a Buy?
Research firm Zacks currently rates BABA stock as a 4, or a sell. However, CNN Business reports that a poll of 58 investment analysts rates the stock as a buy.
Good To Know
Despite the tight scrutiny that Alibaba and other technology companies are under by the Chinese government, there are indicators that Alibaba is making significant efforts to position itself for growth. The e-commerce company recently announced plans to deliver goods to anywhere in the world in 72 hours or less, an initiative seemingly aimed at competing more closely with Amazon.
How To Buy Alibaba Stock
You can purchase BABA stock via an individually held brokerage account or individual retirement account. You can purchase entire shares or, at some financial institutions, you may be able to buy fractional shares.
A Disruptor That Aims for More
For more than two decades, Alibaba has dramatically expanded the number and types of opportunities that are available to small businesses. In doing so, it has fueled greater competition across the globe and enabled many to step into entrepreneurship who wouldn’t have otherwise been able to. Although the company has faced its own growing pains — and may not be out of the woods as it continues to grow — few can question the impact that Alibaba has had or the potential it carries to keep innovating. Investors interested in Alibaba have the company’s strong track record to hang their confidence on.
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- Alibaba Group. 2021. "Alibaba Group Announces March Quarter and Full Fiscal Year 2021 Results."
- South China Morning Post. 2021. "Alibaba CEO tells shareholders that record antitrust fine made it ‘more thoughtful’ about its responsibilities."
- Harvard Business Review. 2018. "Alibaba and the Future of Business."