Jack Ma founded Alibaba in 1999 as a China-based business-to-business marketplace website. It has since become a multinational conglomerate with diverse business interests. It is similar to Amazon and has been considered a massive tech company in China and an electronic commerce behemoth in Asia. The company has growth potential due to its expansion pursuits but it is not without issues. This article provides a definitive guide to the pros and cons or advantages and disadvantages of investing in Alibaba stock.
To Buy or Not To Buy: A Look Into the Benefits and Drawbacks of Investing in Alibaba Stock
Pros: Advantages of Alibaba Stock
Alibaba is a Chinese multinational tech conglomerate. However, considering that it remains a regional giant in Asia with an emerging foothold in the Middle East, Europe, and North America, its stock is traded in several stock exchanges including the New York Stock Exchange and the Stock Exchange of Hong Kong.
Its participation in the stock market has allowed it to raise the capital needed to finance its ambition to expand its business interest and its footprint across the world. The company has also succeeded in expanding its electronic commerce business while also venturing into electronic payment services and cloud computing services.
Nevertheless, considering its potential to grow further from its existing markets while also exploring new regional markets across the world through its existing products and upcoming products, investing in this company can be part of a growth-centric investment strategy. The following are the specific advantages of Alibaba stock:
• Notable Growth Potential: Alibaba is a large-cap stock with a market cap of around $250 billion. It remains a growth stock by some analysts due to its track record of revenue growth and long-term growth-centric strategies that focus on expanding its presence in regional markets and further diversification of its business.
• Emerging Market Dominance: The company dominates the e-commerce and cloud computing markets in China with more than 30 percent of market ownership. Its electronic commerce platforms have been generating multi-billion transactions that are bigger than the combined sales of eBay and Amazon.
• Gains From Other Countries: Buying Alibaba stock means investing in the potential of countries outside the United States and other Western countries. Remember that it has a dominant position in China and has established and further expanding e-commerce operations and fintech businesses in Southeast Asia.
• Technology and Diversification: The company has been using the same playbook as Amazon, capitalizing on technology to improve and expand while also setting up new businesses or acquiring existing ones in the realms of electronic commerce, cloud computing, internet services, and fintech, among others.
• Notable Financial Performance: Another strength of Alibaba is its strong financials. It has been experiencing positive cash flow because its e-commerce operations have grown enough to achieve economies of scale and cost advantages. It also has a solid balance sheet, with significant cash reserves, and low debt levels.
Cons: Disadvantages of Alibaba Stock
Remember that Alibaba has demonstrated strong financials. It is important to underscore the fact that it experienced a decrease in its market value in 2021 and 2022. The decrease was about 75 percent less than its peak market value. Analysts explained that this phenomenon stems from the effects of the coronavirus pandemic, increasing competition, and regulatory issues.
The company has the potential to build a strong presence in other countries but the competitive environment is strong. Amazon still dominates the e-commerce market and cloud computing market in developed and developing markets. It also has to compete against other e-commerce companies and other tech companies offering cloud computing services.
Alibaba has also faced several issues in recent years. It was investigated for antitrust violation in January 2021 and has been scrutinized by the Chinese government. Its expansion in international markets raises concerns about data privacy rights. These issues threaten how it is perceived by the public and foreign entities. Below are the specific disadvantages of Alibaba stock:
• Historical Volatility of its Stock Price: Its stock has been regarded as volatile. Remember that its valuation has drastically decreased in 2021 and 2022. Several factors affect its stock price. These include dependency on the Chinese economy, pressures from competitive forces, and operational impacts of regulations.
• Regulatory and Geopolitical Risks: China has been keeping a closer look at tech companies. Others fear that tech companies such as Alibaba could be dismantled to promote competition. The company also faces risks from the geopolitical issues of China and specific regulatory concerns from foreign markets.
• Possible Impacts of Competition: Amazon is the biggest competitor of this company but it also competes with other tech giants such as the China-based Tencent and the Singapore-based SEA Limited. Investing in Alibaba stock means trusting that it would remain its position in the e-commerce and cloud computing markets.
• Unprofitable Business Ventures: The company has also made several side bets as part of its expansion pursuits. Most of these ventures have remained unprofitable and some would require heavy investments before they become profitable. These activities create uncertainties and increase the risk of incurring significant losses.
