The stage has been set for Alibaba Group Holdings Ltd (NYSE:BABA) to have one hell of a 2017. What’s ironic, though, is that Alibaba had one hell of a 2016, and 2015, 2014, and so on. The company continues to deliver, yet Alibaba stock is under appreciated. Why?
The reason is that Alibaba’s headquarters and the bulk of its business operations take place in China. There is a natural bit of skepticism that surrounds Chinese companies, and their accounting practices. The SEC’s probe into Alibaba’s accounting does not help matters, nor does the concern that mobile user growth increased only 5% in its last quarter.
Still, Alibaba’s problems are not unusual for a company of its size, one with many layers. Remember, Alibaba is the largest retailer in the world by gross domestic product, recently surpassing Wal-Mart. It is a multi-layered company that has its hands in just about everything.
We believe that diversification will be put on display in 2017. Further, we believe that Alibaba stock owners will care less about GMV growth and user growth, and more about the metrics that will actually drive BABA stock gains both now and later. After all, Alibaba Group Holdings Ltd could end up the largest company in the world.
Major Alibaba stock catalysts for 2017
PayPal currently has a valuation of nearly $50 billion. According to CNBC, Ant Financial is valued at $60 billion. We believe that as the IPO nears, investors will realize that Alipay is worth far more than $60 billion, possibly twice that much.
While the premise of Ant Financial and Alipay is very similar to PayPal, there are major differences in how the former is investing in technology. Just recently, Ant Financial demonstrated a VR payment system that allows users to shop inside virtual stores. We believe this could be huge as Alibaba prepares to tackle the online and offline shopping universe.
Like Amazon.com Inc (NASDAQ:AMZN), Alibaba plans to attack the growing trend of online grocery. Also like Amazon.com, Alibaba’s big problem is that consumers still prefer an in-store experience when grocery shopping for many items. The VR approach could make that transition much easier.
That said, the Ant Financial IPO is a catalyst. Alibaba’s continued growth in online grocery is a catalyst. And its recent investment in the Sam’s Club of China for $305 million, Sanjang Shopping Club Ltd, is a huge catalyst to accelerate its in-store presence.
More BABA stock catalysts
Alibaba has an ambitious goal in place. The company wants to double GMV to more than $900 billion by 2020 and quintuple its user base to 2 billion by 2036. If so, Alibaba would have more gross merchandise volume than Amazon.com and Wal-Mart Stores (NYSE:WMT) combined, and a larger user base than Facebook.
Given Alibaba’s constant investments in all things, and its ongoing growth, I think it is very possible. However, the bigger short and long-term catalyst is its rising take rate. Much like Facebook Inc (NASDAQ:FB), BABA monetizes its business with an advertising-like model. It is important that BABA is able to grow its advertising and marketing value, where it creates more revenue per dollar spent over time.
That’s exactly what Alibaba has done over the last couple years, with revenue greatly outpacing the growth rate of user growth. As Alibaba continues to grow its take rate, GMV, and user base, short interest will decline and BABA stock will soar much higher.
Continue to pg 2 for why BABA stock could be a multi-bagger!