Aktienwelt360 » All articles » Alibaba: $26 billion in share buybacks in the pipeline – get in now?
The stock market world is looking forward with excitement Alibaba (WKN: A117ME). The company has not only surprised with its figures in recent months, but also sent clear signals with a massive share buyback program worth $26 billion. So is now the right time to get in?
China’s economy is struggling with weak consumer demand and strong competition in e-commerce. Nevertheless, Alibaba not only sees stabilization, but is also focusing on growth. How strong is Alibaba’s comeback and why could the stock become a champion? I’ll show you why the company’s numbers are impressive. And I take a look at the risks. Because they exist with every investment.
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Operational Strength: The Alibaba Growth Engines
E-commerce remains Alibaba’s core segment. The Taobao and Tmall platforms are market leaders in China and achieved sales of the equivalent of 13.6 billion US dollars in the second quarter of the current financial year – a significant increase compared to the previous year. Most interestingly, Alibaba introduced a new fee model, including a 0.6% software service fee on completed transactions, which has improved monetization. Innovative tools like “Quanzhantui” help retailers optimize their marketing strategies, which also contributes to sales growth.
The cloud division is a real growth driver. Alibaba is the largest cloud services provider in China and reported 7% revenue growth in the most recent quarter. Particularly impressive are the triple-digit growth rates in AI-related products, which have already been achieved for five quarters in a row. Cloud EBITDA rose 89% to $379 million, showing that this division is becoming increasingly profitable.
CEO Eddie Wu sees the future in the field of artificial intelligence (AI). He calls the AI era “the next big transformation” that will fundamentally change both digital and physical industries. Through massive investments in AI infrastructure, Alibaba wants to remain the market leader in this area in the long term.
Opportunities beyond China’s borders
Alibaba pursues a clear growth strategy in international business. Platforms like AliExpress and Trendyol increased their revenue by 29% in the last quarter. Demand for Alibaba’s e-commerce solutions has increased, particularly in Europe and Asia. The investments in logistics and user experience are paying off and helping to position the company more strongly globally.
Alibaba has a solid foundation for sustainable growth
This includes a net cash balance of $22.11 billion. Alibaba generates annual operating cash flow of $21.8 billion. In comparison, the operating cash flow of competitors is like JD.com or Coupang significantly lower. This financial strength not only gives Alibaba stability, but also the scope to invest aggressively in future technologies such as cloud computing and artificial intelligence.
Alibaba has already bought back shares worth almost $10 billion in the current fiscal year and plans to invest a total of $26 billion. Such actions reduce the number of shares outstanding and increase the value of the remaining shares. For investors, this is a sign of trust: management believes in its own strength.
Risks you should be aware of
The Chinese economy is recovering more slowly than expected. Although the government has put together an economic stimulus package, consumption remains subdued. Geopolitical tensions, particularly between the US and China, could also negatively impact Alibaba’s business. It is therefore important for investors to take these risks into account.
In addition, the e-commerce market in China is highly competitive. Platforms like Pinduoduo rely on aggressive pricing policies and pull dealers and users away from Alibaba. And in international business, Shein or Ago in direct competition with Alibaba. These competitors score points with shorter delivery times and a broader range of products, which puts Alibaba under pressure.
Is the stock still undervalued?
Based on my calculation, the fair value is $140 per Alibaba share. This corresponds to a clear undervaluation compared to the current price of $87.
Compared to other companies in the industry, Alibaba’s favorable valuation is evident. While Alibaba’s P/E ratio is 17.6, it is Amazon 43.3 and at MercadoLibre even 68.7. The EBITDA margin of around 18% also shows that Alibaba not only generates sales, but can also convert them efficiently into profits.
My conclusion
The facts and figures speak for themselves: Alibaba has repositioned itself with impressive operational metrics, a massive buyback program and a clear focus on efficiency and growth. Despite the uncertainties in the Chinese economy, management is showing confidence in its own future by investing $26 billion in share buybacks.
China’s consumption woes and intense competition are real, but Alibaba’s strong margins, robust cash flow and ambitious cloud and AI plans create a solid foundation. The combination of undervaluation and strategic course makes the share particularly interesting in my opinion.
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Henning Lindhoff owns shares in Alibaba. Aktienwelt360 recommends stocks from Amazon, Coupang and Mercadolibre.
