This New Deal with Russia Makes Alibaba Stock Look Even Better

Back in September, Alibaba (NYSE:) announced a joint venture in Russia called AliExpress Russia JV. It now is a done deal. The question is how it might affect Alibaba stock.

Alibaba stock BABA stock


So let’s take a look at the details: The company, along with the Russia sovereign wealth fund (RDIF), each and MegaFon (Russia’s second largest mobile operator) will sell its 9.97% equity stake in Mail.RU to Alibaba for a 24.3% in the JV.

Then will transfer its Pandao ecommerce business and $182 million for a 15% position. By doing this, the JV will have sufficient cash resources but also access to key technology assets and distribution, with access to about 77 million subscribers.

Here’s what the , said about the deal:

“This partnership will enable the AliExpress Russia JV to accelerate the development of the digital consumer economy of Russia and CIS countries in ways that no one party could accomplish alone. Together, we are uniquely positioned to offer consumers in Russia and neighbouring countries an innovative shopping experience by combining social platforms with commerce, as well as enabling regional brands and SMEs to sell their products locally and globally. Alibaba’s mission is to make it easy to do business anywhere. This JV is an important part of Alibaba’s international expansion and step toward our goal of supporting 10 million small businesses reach profitability and serving 2 billion consumers around the world.”

It’s true that Russia can be a risky market. Let’s face it, the government has a history of periodic interventions, which have resulted in losses for foreign partners. Just look at the challenges that companies like Exxon Mobil (NYSE:) and BP (NYSE:) have had to deal with.

But then again, China is a tough market to navigate as well. And for the most part, Alibaba has thrived.

Interestingly enough, the U.S.-China tensions may push China toward different alliances, such as with Russia. This would certainly make it more amenable for arrangements like AliExpress Russia JV.

Something else to consider: It will get tough for BABA to keep up the growth in its ecommerce segment in the years ahead. While China still has lots of upside, this will likely come from smaller cities, which could be more difficult to monetize. In other words, BABA has little choice but to look at global expansion, even in riskier countries.

Bottom Line on Alibaba Stock

In the meantime, Alibaba’s business is running on all cylinders. For the fiscal year ended March 31, revenues soared by 51% to $56.2 billion and net cash flows came to a hefty $22.5 billion.

Although, this should not be much of a surprise as the company has a dominant platform. Note that the retail marketplaces have 654 million annual active consumers and there are 721 Mobile MAUs (Monthly Active Users).

But of course, Alibaba stock is more than just about ecommerce. The cloud business, for example, continues to see much traction. During the latest quarter, the revenues for this segment jumped by 76% to $1.15 billion. In fact, BABA is the clear leader in the Chinese market. And as seen with (NASDAQ:), the cloud business can produce juicy margins.

Alibaba stock is also trading at an attractive valuation, with the forward price-to-earnings multiple of about 24X, which is at a steep discount to the growth rate. It is also cheaper on a relative basis to other Chinese ecommerce operators, like (NYSE:), that is trading at 28X and is growing at a slower pace.

Tom Taulli is the author of the upcoming book, .  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

The post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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