Why I’m Still Long Alibaba (BABA)

Just a few months ago, I laid out my investment thesis for Alibaba, highlighting its dominant position in China's e-commerce landscape, its rapidly growing cloud business, and its attractive valuation.

(BABA) Alibaba Investment Thesis

Since then, despite the swirl of geopolitical tensions and market volatility, my conviction in Alibaba has only grown stronger.

Let’s address the elephant in the room right off the bat: the delisting threat.

Yes, Trump has been making noise about potentially forcing Chinese companies to delist from U.S. exchanges. But I view this as largely political posturing. Even in the unlikely event that it comes to pass, Alibaba is well-prepared with its dual listing in Hong Kong. The stock will continue to trade, and the business will continue to operate.

As for the tariff issue, it's important to remember that the vast majority of Alibaba's revenue comes from domestic Chinese commerce. While not entirely immune to trade tensions, Alibaba's core business is far more insulated than many other Chinese exporters.

And it’s not just talk—management’s actions are speaking loudly.

In just the first few days of April, Alibaba has ramped up its buyback activity in a big way. Over six trading days, the company repurchased more than 8.7 million shares, spending nearly $120 million at an average ADS price of just $110. That kind of decisive capital allocation tells you everything you need to know: management (and myself) clearly believes the current valuation is deeply disconnected from the company’s long-term intrinsic value.

This shouldn't be a surprise, over the past three years, Alibaba has reduced its outstanding share count by nearly 15%—a staggering pace for a company of this size.

This is a management team that's putting its money where its mouth is. And they have plenty of cash to work with—over $50 billion in net cash and short-term investments at last count. That's a massive war chest that provides significant downside protection and strategic optionality.

But the real story here, in my view, is the yawning gap between Alibaba's current market price and its intrinsic value.

As I write this, Alibaba trades at 11x earnings and just 7x EV/EBITDA. To put that in perspective, the S&P 500 currently trades at a trailing P/E of around 25x. Even mature, slow-growth industries like utilities and consumer staples frequently command higher valuations than where Alibaba sits today.

This is a company that dominates e-commerce in the world's second-largest economy, with a burgeoning AI/cloud computing business that grew revenue by 13% in the latest quarter (growth rate is expected to accelerate). It has a logistics network that handles billions of packages annually, a digital media ecosystem that reaches nearly a billion users, and a stake in the one of the world's highest-valued fintech player.

Yet the market is pricing it like a cigar butt on its last puff.

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I struggle to reconcile this valuation with the underlying fundamentals. Yes, there are risks—but is Alibaba really riskier than your average S&P 500 company that is trading at more than double the multiple? Is it growing slower? Is its balance sheet shakier or its management team less adept? I would argue emphatically no on most counts.