Alibaba Stock Analysis (BABA)- The Amazon of the East?

0:03 If you have never heard of alibaba the best way that i can describe this company is the amazon of the east i describe this publicly traded company in this way because they are the dominant player in cloud computing and e-commerce in china a lot like amazon is the dominant player in these industries in the us i constantly monitor the stock market for stocks that i believe will generate substantial wealth in the long term and i believe that buying shares of

0:35 Alibaba today will be like planting a seed to grow into a giant tree over the long term if you have never heard warren buffett actually has a famous quote he says that someone is sitting in the shade today because someone planted a tree a very long time ago if you can't tell this quote really resonates with me from a price to earnings ratio perspective exclusively this would be like buying amazon at the six to seven hundred dollar range now i don't want to over simplify things

1:09 Because there are so many factors that go into valuing a company effectively but i'll get to that in a hot second regardless alibaba is an extremely exciting investment to me because it is the dominant e-commerce player in china with over 58 of the market share and it will likely only get stronger through this global pandemic nine to five investing if you haven't already done so hit that little red subscribe button join the nine to five investing

1:41 Community to expedite your path out of the nine to five rat race by building your stock market knowledge and therefore your stock market wealth the first thing that i want to talk about is valuation is actually one of the first things that i look at when i'm considering a new investment based on 12 31 2019 numbers alibaba actually only had a price to earnings ratio 22 while the very similar competitor amazon had a price earnings ratio of about 80.

2:11 In more relatable terms this means that a prospective investor would probably have to pay about four times the amount for every dollar of amazon earnings as compared to alibaba earnings this chart which shows the price to earnings ratio for both companies based on the most recent full fiscal year really drives home the point that i'm making about the valuation difference now this brings us to a very important question why is alibaba so much cheaper than

2:39 Amazon i think that there are so many factors that go into this but one of the main ones in my personal opinion is the market that they each dominate amazon dominates american e-commerce which is arguably more attractive than the chinese e-commerce that alibaba has cornered and i think another big part of this is actually trust see americans with just hundreds of thousands or millions of dollars even to invest whales i like to call them basically

3:07 Probably feel a little bit more comfortable investing in the country they live in rather than a foreign country i've actually been out of college for about two years in my 9-5 job is an auditor for the accounting firm ernest and young you might have also heard of them called ey our firm conducts audits on private and publicly traded companies and the auditing standards are actually very stringent because of some fraud that happened in the early 2000s

3:33 With enron tyco and worldcom i do not know much about auditing standards in china but i know they are much less strict than auditing standards in the us today most recently you had chinese company luck and coffee who recorded about 310 million dollars of fake fraudulent sales and basically this set the share price cratering from about 26.20 to 4.39 at the time of recording this video if there is anybody that wants me to do a video on luck and coffee

4:06 And whether i would even consider this as an investment which i probably wanted after they committed fraud but it is a six of the price just let me know if you want this type of analysis in the comments section below now i want to be abundantly clear i am not trying to say that i think alibaba is cooking their books or committing fraud or something horrible like that i am just saying that i think amazon comes at a little bit more of a premium because it is subject to strict

4:32 U.s auditing standards and this trust does come at a price and therefore alibaba comes at somewhat of a discount compared to amazon now i do talk about speculative stocks a lot on this channel because i think it's fun but really alibaba is the type of company that you could build a portfolio around especially given the valuation in my personal opinion so i briefly want to talk about the different aspects of alibaba's e-commerce business i was actually not really aware of this

5:03 Until i started researching alibaba but they have their hands in just about every e-commerce facet that you could imagine they absolutely dominate china first alibaba owns taobao.com basically a site that's very similar to ebay where consumers can come and buy and sell their own goods to other consumers basically one person can post an item and another person buys it that transaction occurs between the two consumers but of course alibaba takes a cut for the use of their

5:37 Taobao platform the second type of e-commerce that alibaba participates in is business to business this is through their actual website alibaba.com where businesses can sell to other businesses in a much higher volume and finally the third type of ecommerce that they participate in is basically business to consumer this is their website called tmall.com it is the most similar to the amazon.com that most people watching this video are probably pretty familiar

6:07 With if you are enjoying this video so far please just take one second to smash that like button like i smashed this broken tv that i bought off of craigslist for ten dollars in order to try to convince you to smash the like button doing the small action actually really helps me grow my channel and i appreciate it so much thank you now that that's out of the way let's get back into talking about what you guys came here for alibaba has had tremendous sales growth

6:33 And net profit growth over the last several years which is extremely attractive to me as a potential investor while doing research for this video i actually found an extremely interesting statistic about alibaba's singles day which is basically just prime day but for alibaba alibaba actually did about 38 billion dollars of sales and one day during their 2019 singles day while amazon did about 7 billion during their prime day this is the perfect segue

7:03 Into talking about alibaba's staggering growth in sales i'm researching investments i like to analyze trends going back about five years from 2015 to 2019 the company grew their sales from about 12 billion to 56 billion this represents a compound annual growth rate of 35.5 during that same five year time frame alibaba grew their net income from 3.9 billion to 13 billion this represents a compound annual growth rate of about 27.2 percent per year while their net profit margin has not

7:46 Necessarily improved over the last five years it has remained relatively stable and on top of that they closed out 2019 with pretty healthy net profit margin of about 35 percent if alibaba is ever satisfied with the size of their global market share then they can probably drastically improve their margins but i think that this profit margin that has remained relatively stagnant is kind of just the price you pay for such rapid growth even though the net profit margin

8:15 Is not growing like i would ideally like to see it grow i think the fact that they're able to grow their revenue and their profit on such a large scale makes for a very attractive fundamental company alibaba also recently announced that they will be investing a whopping 28 billion dollars into cloud computing over the next three years for those of you that don't know cloud computing is basically providing computer system resources such as data storage and computer

8:46 Processing to the customer without the customer actually needing to own or maintain any of the hardware so instead of buying owning and maintaining physical data centers and servers companies can outsource this to amazon or alibaba this absolute behemoth of an investment is partly in response to the surge in demand for video conferencing and streaming brought on by the complications from this global pandemic that we are currently experiencing but even before this global pandemic

9:21 Cloud computing accounted for about half of the revenue that alibaba brought in in fiscal year 2019. this is actually an extremely strong fundamental development imo because amazon alibaba's largest competitor actually makes the majority of its profit from its cloud computing business amazon web services as it has the highest profit margins this ridiculous amount of money being invested in the cloud computing will actually also help alibaba process and use the massive amount of consumer behavior data that is generated for the use of their websites each and every day

10:01 Another interesting point is that jack ma the co-founder of alibaba actually referred to data as the new oil if you don't catch jack ma's drift he's basically saying that in this day and age data especially data about consumer behavior is extremely valuable as i had mentioned earlier i think that alibaba's margins are pretty stable but they could be a little bit better i think this massive investment in cloud computing will actually really help alibaba's margins

10:31 In the long term as i was doing research for this video i did dig up a very interesting and relevant to the times piece of information just a couple years after alibaba was founded in 1999 good year by the way i was like five china was actually dealing with the sars outbreak alibaba stated that during this pandemic they saw a massive increase in online spending that actually permanently endured could this exact same trend happen in 2020 alibaba is

11:02 Actually making a noticeable effort in expanding their presence in other countries besides china the global pandemic has actually provided an opportunity for alibaba because traditional e-commerce platforms used in countries like the united states and europe simply cannot keep up with the surge in demand only time will tell but i think that alibaba will come out of this international crisis even stronger than before especially from an international perspective

11:30 Given all the information that i just presented i think there's a very strong and compelling bullish case for alibaba stock over the long term if the market crashes again which i think is kind of inevitable i think that i will pick up a lot of shares at least a lot of shares relative to my portfolio size but for anyone still watching this video i want to know what do you think will you be buying any alibaba stock in the near future was there something i missed was there

11:58 Something extremely bearish about this company that i did not pick up on it makes my day to hear your comments i reply to every single comment so please let me know your thoughts and if you haven't already feel free to subscribe i'm gonna be coming out with new videos every monday that will be released at 509 pm so join the nine to five investing community as always thank you for watching and have a great day