In Q4 2021, Charlie Munger showed bullish conviction by doubling down on Alibaba as part of the Daily Journal equity portfolio. Can Alibaba’s new investments and rapidly growing cloud business help its stock price recover in 2022?!
-BABA Is A Wonderful Business To Charlie Munger
-Why Charlie Munger Loves Alibaba So Much
-2021 BABA Performance & Events Recap
-VIE Delisting Concern Update
-Alibaba Changes and Bullish Indicators
-Investor Day Highlights
-Alibaba’s Cloud Business Is Growing Fast!
-BABA: A Value Play Based On Fundamentals?
-Jack Ma and Ant Group’s Regulatory Adventures
-Charlie Munger’s Investing Wisdom With Alibaba
While Mohnish Pabrai was selling most, if not all, of his BABA stake, Charlie Munger was triple dipping by adding 300,000 shares of Alibaba in Q4 2021 as Daily Journal had previously to now have 602,000 shares or about $71.5 million worth. Charlie bought BABA in 3 out of 4 quarters in 2021.
Charlie Munger is one of the GOATs of investing and has high conviction in Alibaba since it’s a very concentrated position among his top 3 holdings, aside from his favorite bank stocks of Bank of America and Wells Fargo in Daily Journal Corporation’s $259B equity portfolio. BABA is now 28% of DJCO’s portfolio, not far behind the bank stocks’ weightings.
With DJCO’s 13F filing coming out on January 4, so soon after the end of the fourth quarter, it’s like Charlie wanted to celebrate his 98th birthday with us. I realized why Charlie loves Alibaba so much, and it seems to be because it has a lot in common with some of his favorite companies: Costco, Berkshire Hathaway, and his favorite bank stocks.
Like Costco, Alibaba charges membership fees while striving to provide the best quality goods and services at the lowest costs. Like Berkshire, Alibaba is a massive conglomerate and holding company. Like the bank stocks, Ant Group provides financial and banking services that benefit a lot of people.
There’s no amount of negative news that could keep Charlie from double scooping the amount of Alibaba as he likely perceives BABA to be a classic example of a wonderful business at not just a fair price, but a wonderful price! And as a deep value play based on its financial metrics, Alibaba could be potentially massively on sale at incredible margin of safety prices.
2021 was a tough year for Alibaba because its market cap got halved and its stock price declined 48%, starting the year at $228 and ending at $119 per share.
Some of this suffering was due to a couple of quarterly earnings misses in Q1 and Q3 2021, a $2.8 billion anti-monopoly fine, relentless regulatory changes, VIE delisting risk concerns, and many more FUD events. Alibaba no longer has a favorable tax status so they will have to pay more in taxes in the future and they had to contribute $15 billion to the China Common Prosperity Fund, which more than likely is a type of investment and not just a donation or tax.
All of this culminated in BABA hitting rock bottom at $108.70 on December 3rd, 2021, and it continued to languish in the low $110s or $120s until the end of 2021.
Alibaba’s management responded by saying they would overhaul their ecommerce businesses and replace CFO Maggie Wu with the deputy CFO Toby Xu starting on April 1st, 2022. This seems to have been part of the success plan, though the timing was curious. Toby Xu is a director on the Sun Art Retail Group, which Alibaba recently obtained a controlling stake in.
They must be bullish on the company’s future prospects because they increased the share buybacks from $10B to $15B through 2022, which is likely to help put a floor on the stock price.
Investors seemed to be underwhelmed by Alibaba’s Investor Day of December 16-17, 2021 as the stock price barely budged, but the management shared a lot of plans and financial highlights. The Investor Day presentations showed a lot of strong fundamental growth in revenues, profitability, and customer bases, especially in their core commerce and cloud segments.
They especially demonstrated Alibaba’s rapidly expanding cloud business, which seems exciting as they embark on Cloud 3.0 with 5G, metaverse, industrial AIoT, autonomous vehicles and robots, and more cloud-network-device convergence. While Alibaba is only 10% of global cloud while Amazon Web Services has 40%, at Alibaba’s cloud growth rate, I think it’s possible that one day Alibaba could have 35% of the cloud and Amazon could decline to 20% of cloud market share.
They’re also prioritizing ESG with investing in technology that benefits society while reducing their carbon footprint.
Meanwhile, Jack Ma has been keeping quietly busy with implementing regulatory changes at Ant Group and fundraising $3.5 billion for the task. Now the China state-backed Cinda has a 20% stake in Ant Group with an almost $1 billion investment. Most likely the regulatory-driven restructuring at Ant won’t negatively impact Alibaba’s operations as long as Alipay’s payment services don’t get interrupted.
Overall, if we’re trying to be good, long-term investors, and we want to imagine which companies will still have a durable, competitive advantage in 10, 20, 30, 100 years from now — then I think we should heed the investing wisdom of 98 years young Charlie Munger. I would consider myself lucky if I can just absorb a fraction of his investing wisdom to make better investing decisions.
Alibaba as a business is a “young adult” because it seems to have a lot of years to keep growing as Jack Ma wants it to live for at least 102 years, to span from 1999 through 2100.
So even if some pose the challenge that Alibaba won’t be worth more than Amazon, if we know anything about Jack Ma, I bet he would say: Challenge Accepted! I hope you enjoyed the video and this blog recap!
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