Stock Picks – Alibaba Group Holding Ltd: A Global Tech Octopus

Alibaba Group Holding Ltd (NYSE:BABA) is a global B2B e-commerce brand that is riding the coat-tails of Amazon. The website based in China connects international businesses with manufacturing companies and factories. With the recent rise in popularity of Amazon FBA, which is a term used to describe shipping your listed product in bulk to an Amazon warehouse and having Amazon package and ship a unit of your item once it is sold on Amazon; sellers have been using Alibaba to connect with overseas factories. In this way, shipping and production fees become very economical. To illustrate the recent rise in popularity, we can look for search traffic for the term Amazon FBA.

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As you can see, it has skyrocketed in recent years. Additionally, AliBaba reports that it imports and exports products to 240 different countries and regions, meaning that Amazon is not the only place where sellers are using the platform to resell bulk deliveries.

However, Alibaba Group Holding Ltd means more than just online reselling. In China, the brand is synonymous with all things shopping, tech and finance.

AliExpress - The B2C Arm

AliExpress fulfils the needs of regular consumers, giving them wholesale prices for a much lower quantity of goods, for example, buying one phone charger instead of five hundred. However, with AliExpress the higher quantity you order, the cheaper your item becomes per unit. It's Alexa rank, which determines the popularity of the website, is 47, meaning it's the 47th more popular website in the world. AliExpress is also the most visited e-commerce website in Russia. With the shift in global spending habits favouring researching to find the lowest price before ordering, and the rise of the information generation of generation Z, the number of individuals looking for the lowest prices available online will keep rising.

Alibaba Group Holding Ltd's Technology Arm

In 2009, Alibaba Group Holding Ltd announced that they had finished building the infrastructure needed to start cloud hosting. With their newly built data centres, the AliBaba Cloud could host vast amounts of data for global clients. With an ever-expanding shift to storing data on the cloud instead of local hard drives, which can easily be lost, damaged or otherwise corrupted, AliBaba Cloud is poised to take on more and more data. Additionally, in 2019, they announced the addition of a specialized system of supercomputers meant for testing and developing artificial intelligence. It is currently available to rent, and even though it is a new industry, it is one that has massive growth potential over the next decades. In terms how AliBaba Cloud will fair in the international landscape, we will need to see how it plays out since there is a generally negative sentiment right now regarding the Chinese government having access to American user data. This idea might lead to a cog in AliBaba cloud's worldwide adoption. Nonetheless, with the cloud computing arm currently only making up a small portion of the company's total $72 billion in revenues, it is still one of its fastest-growing divisions.

A Myriad of Other Arms

It almost seems as if, just like Netflix (NFLX: NASDAQ) which creates a vast amount of one season shows to see what sticks, Alibaba is doing the same with its myriad of other ventures. With AliBaba having a free cash flow of $10 billion (Alibaba Form 10k-2020) in 2020, even after all of their new ventures over the past decade, it looks as if their strategy is working. Looking at some of their largest "arms" outside of their core business, we can see why they are so financially healthy.

AliBaba.com and AliExpress are their two largest e-commerce marketplaces; however, they also own many others outright or have a controlling interest in them. Lazada, a private company which claims to have served over 50 million customers in 2019, is a popular e-commerce marketplace in many south-east Asian countries. With its majority stake acquisition in Lazada, AliBaba is reaching a whole new market. There are also a handful of other regional e-commerce websites controlled by AliBaba.

Among other ventures, Alibaba Group Holding Ltd owns Fliggy, an online travel and ticketing agency; Hema; a chain of "buy it online pick-up now" supermarkets; Sun Art; China's largest hypermarket operator; Cainiao, a Chinese parcel delivery service and network; and Digital Media Entertainment Group, a company focused on the ticketing, content distribution and live shows.

Lastly, Ant Group, one of the most valuable financial technology companies in the world, was created by AliBaba. It is currently China's most extensive digital payment platform processing $17.5 trillion as of 2020.

Alibaba Group Holding Ltd: Long Term Potential

As you can see, with its octopus style strategy of having their ventures span multiple industries, Alibaba Group Holding Ltd is poised to have some big winners over the next decade. Even if one fails, they have many other ventures to fall back on.

(For disclosure purposes, I am long on AliBaba)