It’s been a dramatic year of ups and downs for Alibaba (BABA / 9988:HK) as tensions between the US and China are rising and a slowing Chinese economy has been hampering Alibaba’s growth in 2022.
I provide Alibaba updates regarding their current delisting risk status, superinvestor activity, their financial performance, and what you would have made if you bought BABA at its IPO price.
It remains to be seen whether Alibaba stock will be the “best contrarian play of our generation,” but it’s fascinating for me to study so I hope you appreciate what I’ve gathered for your learning enjoyment in this video.
After BABA had been one of the hottest stocks throughout 2021 among superinvestors, it seems that superinvestor sentiment for this stock has cooled in 2022. Out of Dataroma’s 79 superinvestors, only 12 own BABA.
Charlie Munger, Bill Miller, and Guy Spier continue to own BABA, making up the biggest percentage of their portfolios compared to the other superinvestors on Dataroma:
Charlie Munger of Daily Journal since Q1 2021, $34M at 19.5% of portfolio
Bill Miller of Miller Value Partners since Q2 2017, $93.8M at 5.25% of portfolio
Guy Spier of Aquamarine Capital since Q2 2021, $5.4M at 3.17% of portfolio
However, Ray Dalio of Bridgewater Associates and other superinvestors sold out of BABA:
Bridgewater Associates: Q2 2018 – Q2 2022, $814M
Greg Alexander of Conifer Management (Sequoia): Q4 2020 – Q1 2022, $256M
Mohnish Pabrai: Q1 2021 – Q4 2021, $58.7M
Phil Town: Q2 2021 – Q1 2022, $17M
Speaking of Phil Town of Rule 1 Investing, I heard him say on a recent Invested podcast episode that he didn’t consider enough how significant the American regulatory risk was when it came to BABA. This is one of the major reasons Phil Town sold Alibaba, in addition to the rising tensions between the US and China.
There was plenty of regulatory drama this summer where on July 29, Alibaba got added to the SEC’s potential delist list. And then about a month later on August 26, US and Chinese regulators signed a cooperation agreement allowing for US regulators to fly over to China to inspect the audit documents of Chinese companies listed on American stock exchanges.
Perhaps this means that the 261 Chinese stocks making up $1.3 trillion in market value may not have to be delisted from US stock exchanges eventually. As a frame of reference, this market cap amount is just about the same as Alphabet (Google) stock (and what if GOOGL is on sale?!).
In addition, Congress is currently debating a “China competition bill” which would want to shorten the audit document inspection deadline to March 2023 instead of 2024 so the clock is ticking for US regulators to not only inspect, but OK the Chinese stocks’ audits. We might not know until the end of 2022 whether some of these Chinese stocks like Alibaba will get off the potential delist list.
According to a Goldman Sachs model, there’s now a 50% probability that Chinese stocks would be delisted, which is down from a 95% probability in March!
China’s economy has been slowing down rapidly where their real GDP growth rate is projected to be only 4.3% this year compared to being north of 6% in prior years. Their economy has been suffering from a real estate crisis and a big housing bust among the 96% of Chinese people that own real estate.
It looks like Alibaba has taken a hit from the depressed Chinese economy where their financial performance has been declining over the last few years.
I share some highlights from Alibaba’s March 31, 2022 fiscal year and and June 30, 2022 quarter results. Net income in 2022 declined to a third of what it was in 2021 and 2020. Free cash flow declined by 43% from what it was in 2021.
Cloud revenues were a bright spot that brought in 23% increased revenues from 2021 and is starting to be profitable due to reaching economies of scale in Alibaba Cloud and DingTalk. Total revenues were up 19% from 2021 but both cloud and total revenues were down compared to the 2019-2020 growth rates.
In the June 2022 quarter, free cash flows were $3.3B, an improvement of $213M over the June 2021 quarter.
Alibaba’s management did $3.5B of share buybacks in Q2 2022 compared to having done $2B of share repurchases in Q1 2022. They still have about $11.9B earmarked for future share buybacks in their current repurchase program. The remaining net cash was $50.8B.
The growth rate of Alibaba’s cloud revenues slowed dramatically in Q2 2022 compared with prior second quarters where it was only 10% Year over Year (YoY) growth. This compares to Q2 2021 having a 29% YoY and Q2 2020 having a 59% YoY.
This somewhat surprises me because you would think with Alibaba’s strengths of ecommerce and cloud services that they should be relatively as antifragile as Amazon, Google, and Microsoft had been during similar lockdown periods. But maybe Alibaba’s performance will improve when the Chinese people and businesses can resume normal spending patterns when economic and health conditions improve.
Alibaba’s IPO on the New York Stock Exchange happened 8 years ago on September 19, 2014 and was initially at $68 a share. Exactly 8 years later, BABA stock had closed at $87.66 a share on September 19, 2022. If you factor in inflation, you would have made 3% in 8 years if you bought BABA at $68/share as that is equal to $85.07/share in 2022.
If you had paid the closing price of $93.89 a share 8 years ago, you actually lost 25% after inflation makes that amount equal to $117.46/share in 2022.
While none of this is investing advice, if you’re invested in BABA, you have to decide whether you have conviction in this stock like Charlie Munger still seems to have faith in it compared to Ray Dalio who doesn’t seem to anymore.
Otherwise it’s fun just to study and see where this stock might go someday — putting your capital at risk is not required!
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
I look forward to making more investor friends! Add me on Insta: michellemarki