But despite the company losing almost 30% of its value in 2022, industry experts are now predicting that BABA could soar as high as $138, representing a gain of close to 45% from current levels.
Indeed, this estimate is backed up from a discounted cash flow perspective, which has the business presently valued at $144. Moreover, the firm grew its adjusted EBITA 29% in the September quarter
, demonstrating the venture has little problem in turning a profit.
However, what growth catalysts are needed for Alibaba to reach those lofty heights? And, perhaps more importantly, is the brand robust enough to see it through this uniquely challenging time?
How Does BABA Generate Cash?
The Alibaba Group specializes in a wide variety of businesses, including e-commerce, cloud computing, and artificial intelligence.
For instance, in the retail and wholesale space, BABA manages a number of platforms – such as Taobao, Tmall, and Alibaba.com – which allow traders to buy and sell goods online. The company benefits from these services through commissions, listing fees and advertising sales.
Alibaba also runs a digital payments service called Alipay, which facilitates online payments and money transfers. In addition to charging for its services, Alipay makes money from the interest on deposits held in its users’ accounts.
Furthermore, in the cloud computing domain, the firm operates Alibaba Cloud, a scalable computing solution designed for enterprises, SMEs and developers. Alibaba Cloud bills customers for the use of its technologies, with extra revenue also derived from the sale of products such as PolarDB, Tair, and Lindorm, its elastic cloud-native database
The company is active in the field of artificial intelligence too. It has created a plethora of AI-powered services – using both Convolutional Neural Networks and machine learning algorithms – that “provide personalized recommendations
” to customers within milliseconds. These solutions are sold to other organizations, and BABA profits through one-off and recurring payment structures.
Alibaba has been actively pursuing global expansion in recent years, focusing on improving its presence in the Asia-Pacific region.
Indeed, the firm’s international arm, AliExpress, has announced plans to invest millions of dollars in a new South Korean expansion initiative
. The company aims to tap into the country’s thriving e-commerce scene – South Korea is recognized as having the fifth-largest e-commerce market in the world – and leverage its strong technology capabilities.
In addition to its foray into South Korea, Alibaba is also pursuing strategic investments and partnerships in a bid to enter new markets and strengthen its presence in existing ones.
In fact, the firm has made several acquisitions and investments in various sectors – including travel, healthcare and entertainment – to expand its global reach. Some notable examples include the purchase of Lazada, a Southeast Asian digital platform, and the buyout of Ele.me, a Chinese food delivery startup.
Alibaba Can Be A Data-mining Monster
might be most famous for its online marketplace, the company also happens to be sitting on a vast treasure trove of statistical insights gleaned from its many business verticals. And this, as Alphabet
have already proved, is an asset that can be monetized in and of itself.
Indeed, there are several ways that Alibaba could go about this. For example, one option would be to offer its analytics to other companies, helping them better understand their customers, markets, and operations. This could include market research services or customer segmentation analysis.
Moreover, the firm could also use its data and insights to offer targeted advertising services, helping retailers and sellers reach specific customers more effectively. Google is currently the leader in this regard, but BABA has the potential to rival the American tech business in the coming years.
In addition, Alibaba can employ its know-how to offer targeted promotions to its own users, helping them discover new products and services relevant to their interests.
Finally, the company is positioned to develop new products tailored to the needs and interests of its base. For example, BABA could use its data on shoppers’ behavior and preferences to come up with novel e-commerce features, or improve the quality and effectiveness of its existing services. This could include using the information on customer feedback and usage patterns to optimize its e-commerce platforms, or to streamline the performance of its cloud computing services.
Another area that could contribute to BABA’s share price increase is its cloud computing segment. Alibaba has emerged as a dominant player in the sector lately, with its cloud business consistently posting positive metrics.
Indeed, one of the critical drivers for Alibaba Cloud has been its expanding product portfolio. In addition to its wide range of cloud computing services, it’s also made significant funding available for research and development, including a $15 billion investment in its DAMO Academy research institute
Looking ahead, Alibaba Cloud is ready to continue its growth trajectory, driven as it is by the increasing demand for cloud services across multiple industries. The company’s focus on R&D – and its expanding geographical presence – will likely boost its future prospects too.
Are The Risks Of Investing In China Just Too High?
Given the company’s significant presence in China – where it operates under the oversight of the Chinese government – political and regulatory pitfalls are a vital consideration for investors looking to buy into the Alibaba Group.
In fact, changes in government policies
can have a material impact on BABA’s financial performance. For example, the Chinese government has in the past implemented rules that have affected the e-commerce industry – such as restrictions on cross-border online sales – and these decisions could be reintroduced again.
Considering the complexity of the company’s operations and reliance on third-party providers, supply chain risks are also a concern for BABA.
Indeed, China’s strict zero-COVID policy has significantly impacted Alibaba’s business, with the pandemic leading to disruptions in transportation and logistics that have curtailed its ability to deliver goods to its customers. This has led to delays and reduced revenues for BABA, as well as other headwinds due to changes in consumer behavior.
In addition, the economic impacts of the pandemic have caused a fall in demand for the firm’s services. Moreover, new regulations related to e-commerce and online payments have been implemented in response to the pandemic, which have also affected BABA’s top and bottom lines.
Price Target For Alibaba: Conclusion
Alibaba beat its own target of reaching 1 billion Chinese users
this year – well ahead of its stated 2024 deadline. And that’s not surprising: the company has an excellent business with plenty of potential to grow.
While there are obvious risks in investing in Chinese operations, there’s little to suggest that BABA won’t outperform expectations, resulting in superior returns for shareholders and customers alike.