Alibaba FQ1 2021 – Poor man’s Amazon

No FOMO here.

• Alibaba reported good results as it continued to benefit from the same trends that have driven Amazon during the pandemic.
• Alibaba sells far more stuff than Amazon but it is little known outside of China which combined with increasing hostility means that it is unlikely to grow outside China foreseeable future.
• However, investors are being asked to pay just 1/3 of the valuation for the shares making Alibaba a good place to look for those that want to buy Amazon but can’t stomach the valuation.
• FQ1 2021 revenues / EPS (per ADR) were $21.8bn / $2.10 which was ahead of estimates of $21.3bn / $1.96 representing a very solid 27% YoY growth.
• Alibaba says it has fully recovered from the pandemic (not very hard because it was a beneficiary) but the real story in the results is its increasing reach.
• This is Alibaba’s strategic priority and progress was demonstrated with the addition of 28m new users in the last three months.
• These new users are predominantly in areas of the country that are less developed and where the infrastructure is not well set up to offer a good online shopping experience.
• However, in Alibaba’s favour is the fact that the offline experience in China is so bad that even a mediocre experience is a big improvement.
• Monthly Active Users (MaU) hit 874m in FQ1 2021 and Alibaba’s target is to grow this to 1bn almost entirely within its borders.
• All in all, this was a good set of results from Alibaba and while it is facing an increasingly powerful challenge from Tencent, it is still by far the market leader.
• In this sort of business, this is crucial as marketplaces are all about being the go-to place to effect a transaction and this is a position that Alibaba still holds comfortably in China.
• Tencent may be able to put some pressure on the commissions that it charges to its merchants, but it will be difficult to wrest the hallowed status from Alibaba.
• Alibaba sells more stuff than Amazon and makes excellent margins while doing so but for some reason, its multiple is around one-third of Amazon’s.
• There some good reasons for this but compared to Amazon and even Tencent, the company looks cheap.
• Alibaba does have governance issues meaning that its fair value is lower than it otherwise would be, but it has badly underperformed both peers since the market correction in March 2020.
• Hence, this is one I would be prepared to look at as both Amazon and Tencent have rallied way past the point at which I would be comfortable.
• There is no fear of missing out in Alibaba’s share price which instantly makes it more attractive.