Where Will Alibaba Stock Be In 5 Years?

After all the scrutiny, the stock is down almost 19% over the last 12 months, and down 11.36% year-to-date. The past five years have been even harder on the company, with shares coming in at over a 55% loss.

But the company reported solid fundamentals in the fourth quarter of 2022. And there was exciting recent news that Alibaba is planning a major restructuring of its internet empire, splitting the company’s many ventures into six streamlined units.

The March announcement sent shares soaring, but the price jump was short-lived. Investors have had long-running concerns because Alibaba is based in China and it’s had to battle strict regulations and heightened restrictions. There is hope, however, that they are loosening.

So where will Alibaba stock be 5 years from now?

How Alibaba Got Started

Alibaba was founded in 1999 and quickly grew to dominance as an online retailer. The company does business in six main segments:

• cloud services,
• China-based e-commerce,
• international e-commerce,
• digital mapping/food delivery,
• logistics, and
• media/entertainment.

Under the new restructured model, each of these units may pursue its own initial public offering (IPO) on global stock exchanges. Alibaba also hopes to reduce possible antitrust infringements and other regulatory issues by splitting out its business units this way.

The company still makes most of its money from the China e-commerce segment, consisting of a large conglomeration of retail businesses. This business unit accounts for nearly 70% of the company’s revenue.

Alibaba operates two major online Chinese marketplaces:

• Tmall is a third-party platform that connects verified retailers with consumers.
• Taobao connects consumers with each other in a similar way to eBay

Aside from these platforms, Alibaba owns many other companies, including some brick-and-mortar retailers.

Outside of China, the global commerce and cloud services segments each account for roughly 8% of Alibaba’s revenue. The smallest segment in the company is the digital media and entertainment segment, with only 3% of revenue.

BABA Q4 Ups and Downs

Total revenue was $35.9 billion in the 4th quarter of 2022, a 2% year-over-year (YOY) increase from 2021. The company’s revenue growth has slowed over the years, but positive growth is still a good sign given the lingering restrictions and supply chain disruptions the company has endured.

Net income of $6.6 billion was a whopping increase of 138% YOY. This increase was tied to reduced expenses from the Digital Media and Entertainment segment.

Free Cash Flows (FCF) of $11.8 million represent a 15% year-over-year (YOY) increase from 2021, which is a very healthy indicator. A price-to-sales (P/S) value of just 1.65 is another good sign that the company is undervalued compared to its competitors.

Cloud Computing Growth

Even though Chinese revenues have been slowing down for the company, there are other avenues to explore. Cloud services are a huge moneymaker for Amazon, but Alibaba has not been able to make significant inroads so far.

The major issue is the regulatory environment in China. But given the recent relaxation of restrictions, Alibaba hopes cloud services will be a primary driver of revenue growth going forward.

That’s one of the reasons the company recently announced a plan to slash its prices. While this will cut into short-term profits, the company hopes the increased customer base will pay off in the future.

BABA Vs JD Vs Tencent

Alibaba is an enormous company with many different businesses, and there are competitors for all of them. While the company is firmly established in China, internationally it can’t compete with Amazon’s market share and brand recognition.

Closer to home, Alibaba has JD.com and Tencent to worry about, among others. JD.com is a huge retailer that makes most of its money off first-party sales. That means it has to carry inventory, and its business is more centralized than Alibaba’s segmented approach.

Tencent, on the other hand, is more social media-, gaming-, and entertainment-oriented. But Tencent has been willing to invest in companies that have no relation to its business model, so long as the investments are profitable.

Regulatory Headaches

The regulatory issues that Alibaba and its Chinese competitors have faced have been heavily scrutinized by investors. Many investors see the negative political tensions between China and other world powers as reason enough to steer clear of any Chinese company.

Aside from geo-political concerns, Alibaba has had other issues with the government. The company was fined upwards of $2.8 billion by the Chinese government in a massive antitrust case. But the government isn’t as concerned with Alibaba’s alleged monopoly as it is with controlling financial and personal data.

These concerns, as well as supply chain issues raised by heightened restrictions, are the main reason bears have lost confidence in not only Alibaba but many Chinese tech stocks.

Where Will Alibaba Stock Be In 5 Years?

According to 43 analysts, Alibaba can reach as high as $145 per share over the next 5 years. A 5 year discounted cash flow forecast projection places fair value at $156 per share.

Alibaba is a true tech giant with a well-established e-commerce platform in China. But it also has multiple investments in various industries, and it’s undergoing a major restructuring in order to streamline its offerings.

Going forward, the company looks to keep its revenue steady from its China commerce segment. But the main opportunity for growth lies in its other five business units. Cloud computing services and logistics offer strong new ways for the company to achieve growth.

In the short term, it’s difficult to forecast a positive trend for the stock. The concerns about the Chinese business environment have yet to be alleviated, and the revenue from the other segments isn’t there yet.

If Chinese restrictions are truly in the rearview mirror and Alibaba is able to avoid any more sanctions from the government, the future looks bright for the e-commerce giant. Given the discounted stock price and the low P/S value, it’s a great time to invest in a stock that should be flourishing five years from now.

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