Despite the growing uncertainties occasioned by the novel coronavirus pandemic, Chinese e-commerce giant, Alibaba (NYSE:BABA) has seen its stock price skyrocket in the last few months. In its annual report released on Friday, the company is said to have reached a $1 trillion merchandise volume for the first time since its founding.
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The recent gains for Alibaba are a derivative of the improving economic conditions in China that have been a boon for most US-based Chinese tech companies. The government has encouraged a “healthy bull market” and investors have responded in kind. Alibaba stock rallied at a new high of $268 on July 9.
Alibaba’s success can be attributed to its growing e-commerce footprint. Since the mandated physical store closures, it is an industry that has become a huge hit among investors. The company is well-poised to make some big plays in the digital space and is a great investment for the long haul.
Digital Efforts and Alibaba Stock
The corona-economy has bolstered innovation in digital operations and many investors have been quick to snap up stocks in the space. E-commerce veteran Alibaba is by far one of the largest online platforms in China and has benefitted from the corona-induced tech boom.
Since taking over as CEO of the company in 2015, Daniel Zhang has highlighted the importance of digitization for Alibaba. He hopes to make digital operations the core of the company’s infrastructure and become a major player in the global e-commerce playing field at home and abroad. The company hopes to serve more than $2 billion customers in the next two years.
Alibaba provides an online marketplace for consumers, retailers and third-party wholesalers and the shift to a virtual business model for most companies has accelerated the growth of its e-commerce platform. In 2020, the Alibaba had 140 million active consumers and 250,000 brands on its platform. Each customer spent more than $1,400.
However, Alibaba’s digital footprint isn’t just limited to e-commerce. The company has a strong presence in the cloud-computing space as well. Alibaba Cloud which is the data backbone of the e-commerce platform has sought to expand its global reach through partnerships with companies like Equinix (NASDAQ:EQIX)- a California based WAN (wide area network) business.
In addition to this, Alibaba announced that the company would invest 200 billion yuan or $28 billion over the next three years in its cloud business. This decision comes after the initial success of cloud computing as more people flocked to digital resources during the start of the pandemic. The cloud segment is one of Alibaba’s highest growth units apart from its e-commerce platform.
As we move towards an increasingly digitized economy, it would be wise to hold on to Alibaba stock and reap its rewards in the coming years.
Jack Ma Cashes Out
Investors’ appetite for e-commerce stocks has been nothing but good news for Alibaba as its share price increased by more than 50% this past year. The company’s founder Jack Ma has decided to cash out on the returns.
According to the company’s annual report, Ma has cut his ownership stake in Alibaba from 6.4% to 4.8% and cashed out $9.6 billion. The founder’s divestment in the business comes after he stepped down from his formal business commitments in the company to focus on his philanthropy efforts. Ma was succeeded by Daniel Zhang as chairman in 2019.
While the selling price of Jack Ma’s divestment is not revealed, the stock had a stellar performance and was able to beat its forecasted earnings growth for the fiscal year.
This is despite the slowdown of the Chinese economy in lieu of the pandemic.
The Bottom Line on Alibaba Stock
The current momentum of Alibaba’s growth, powered by a digital economy is working in its favor. The Nasdaq Composite Index that tracks tech stocks has performed well this year and pushed Alibaba stock to new highs.
The future of the economy will be increasingly digitized as companies in the health, leisure and business sectors shift to a virtual environment. Alibaba’s investment in its cloud segment and e-commerce platform will accelerate the company’s growth in the coming years in line with this trend.
We recommend you remain bullish on this stock as the potential for Alibaba’s future growth is hard to ignore!
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.