On the back of the latest trade war tweets, Alibaba (NASDAQ:BABA) stock dropped 5% of its market cap early in U.S. trade May 6, though it tempered to around 4% later in the day. That’s $25 billion flushed into the economic sewer system. By a tweet.
However, the prospect of higher tariffs on Chinese imports should not, by itself, mean anything to Alibaba. Alibaba is not a factor in the U.S. retail market. It is an Asian play, mostly a Chinese play. Making the U.S. an unreliable trade partner will only cement its ties with the rest of the world.
BABA stock is taking advantage throughout Asia, looking to do more deals in India, introducing itself to New Zealand consumers, and creating its own type font so people can tell its partners apart without thinking.
BABA Stock Hitting on All Cylinders
Despite increasing its inventory risk, building its company-owned supply chain and opening retail malls, 57% of every yuan that came in Alibaba’s door last year hit the gross profit line. Alibaba has enough cash to pay off its long-term debts with a check, despite its enormous, and growing physical presence across the world’s fastest-growing economies.
As the U.S. walks away from the world, Alibaba runs toward it, setting up direct supply agreements for Argentine beef and Chilean fruit, and entering a strategic partnership with Mexico.
The American relationship with China matters very little to Alibaba. We’re only a source of capital, and if we don’t invest, other people will. Alibaba is now China’s most valuable brand.
While the “996” culture — working from 9 am to 9 pm six days every week — sounds monstrous, it speaks to workers’ absolute faith in the company. It’s also just three hours longer than what my dad worked in his TV repair shop 50 years ago. (He closed Saturdays at 6 p.m.)
Anything Amazon can do, Alibaba can do better. Its Tmall makes Whole Foods look like a gas station convenience store. Amazon has a 30% growth rate, but Alibaba has a 60% growth rate. There are many investors who still short Alibaba. A lot of people are losing money.
My Missed Call on Alibaba
I rode Alibaba for two years, getting out in February in fear of China’s coming real estate bust. That was a mistake. China can get out of trouble just like America did a decade ago, by printing money and bailing out the bankers. That will take a near-term toll on Alibaba’s results, but it will likely emerge from the other side stronger than ever. We’ve provided the road map.
Meanwhile, Alibaba shares are trading 20% higher than where I sold, even after the 5% drop. Alibaba is next due to report earnings May 15, with 99 cents per share on $13.47 billion in revenue expected, and $1.04 per share hoped for. The March quarter is traditionally Alibaba’s weakest, yet there’s 38% year-over-year growth.
Alibaba also has a more profitable cloud than Amazon, selling a platform rather than just infrastructure, with applications that make it more akin to Microsoft (NASDAQ:MSFT) than Amazon or Google.
The Bottom Line
Trade wars are unhealthy for economies and other living things. You may quote me.
But trade wars are more likely to hurt their instigators than their targets. They lead to reputations for being unreliable.
The current trade tensions are a huge opportunity for China, but they’re an even bigger opportunity for Alibaba. If I had their kind wealth and power in front of me, and I were 30 years younger, I’d be working 996 for it too.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, MSFT and AAPL.