“He may have been caught by the party, and he may be in a dark room now,” the head of the China Research Group told me last week.He was talking
The founder Jack Ma is the richest man in China and has not seen him for weeks.
For “party”, he does not mean the kind of festival, as Alibaba did at its 2017 annual party. At that time, Michael Jackson, dressed in a golden mask, was dressed like Jack Ma. Jack Ma flew onto the stage and did some dance steps-mainly pelvic thrusts. What he meant was the ruling Communist Party of China, Jack Ma had apparently crossed the party, and its regulators are now following his company.
It sounds very pessimistic. But this is 2021: bond yields are meager, Bitcoin has just surpassed $40,000, and investors are as hard as Michael Jack Ma to drive fast income growth. Of course, the shares of Alibaba Group Holdings (stock code: BABA) have been sold. However, in a poll conducted by FactSet, 53 of 54 analysts covering Alibaba pointed out that now is a good time to buy. is it?
Let’s start with some positive aspects. Alibaba is an impressive company with an active user base that is more than twice the US population.In China’s e-commerce, it’s better than
(AMZN) In the United States, better than Amazon or
(WMT).Its main retail business is Alibaba (Alibaba.com), which connects manufacturers with global wholesalers; Taobao, an intermediary between buyers and sellers
(EBAY); and Tmall (Tmall.com), which is a global brand (e.g.
The researcher I mentioned, “China Beige Book” CEO Leland Miller (Leland Miller) said: “These technology companies owned by China are not… American products.” “They It’s a truly innovative, compelling company.”
Alibaba has complementary side businesses, covering cloud computing, transportation and logistics. It created Alipay to increase people’s trust in online payments, and then divested it in 2011.Today, Alipay’s name is Ant Group, which is better than
(PYPL) and has been involved in loans, investment and insurance.
Ant Group is scheduled to go public last year. Some bulls have predicted the market value of 300 billion US dollars, and recently Alibaba is 617 billion US dollars, Alibaba is 414 billion US dollars.
(JPM). Alibaba owns a third of Ant Group’s shares.
In November, the stock offering was suddenly shelved. Approaching Christmas, Chinese regulators announced an antitrust investigation of Alibaba and aimed to establish new rules for Ant Group.
Jack Ma, worth more than US$40 billion, has since missed scheduled TV shows. He has not appeared in public since he criticized China’s state-owned banks for operating as a “pawn shop” in a speech in October.
“Whether it is an individual or a company, Jack has encountered a lot of trouble,” said Miller of “China Beige” magazine. Miller said that he may be “wisely lowered his head” or may be detained for “not showing respect to the party.”
Alibaba did not immediately respond to questions about Ma Yun’s whereabouts.
It’s not just appearance. Miller pointed out that Alibaba’s financial business has long been entitled to pay depositors more money than China’s strictly regulated banks.
He said: “All this money will scream out from the state government…it makes the state bankers crazy.” “This is Jack Ma, who got rich and stole their deposits without doing anything. Things.” The banker yelled to Beijing in the face of declining deposits.
Miller, former company Provided Chinese legal counsel to hedge funds and established the “China Beige Book” in 2010 to solve two problems. He said that official economic data from China are not reliable or complete. His workers collect data by conducting surveys on Chinese companies, including: private and state-owned, large and small, coastal and rural, domestic and global.
What do they see now? The constant numbers confirm that the story of China’s official rebound from the economic downturn is accurate, but the recovery is not particularly strong. It is driven by increased production, not by private household demand.
Jack Ma’s strange case illustrates the unique risks of investing in China. The government can quickly change the rules without warning. Jack Ma may reappear in a few weeks or months, Alibaba will suddenly reorganize, and Ant Group will be under the control of the new government.
There are separate risks for investors to purchase stocks listed in the United States. They get equity from investing in Alibaba’s offshore tools, rather than investing in Alibaba itself. Miller said: “There is nothing to say that the Chinese government cannot just cut off this connection.”
Trade tensions between China and the United States may have an angel China looking for new means of retaliation, including with American investors in Chinese companies. So, how to trade fares under the leadership of the new US government?
Miller said that both sides have political sentiments against softening the relationship.
Where will that leave potential Alibaba investors? Nowadays, one of the rarest things in the investment field is a fast-growing company with moderate transaction prices. Tesla’s car shipments are growing at only a quarter, but the transaction price is more than 100 times the free cash flow that the company is expected to generate since 2024. Amazon’s pricing is about 15 times cheaper than the estimated annual free cash flow. Of course, estimates that are far beyond are just educated guesses. Nevertheless, Alibaba’s cash flow is 11 times expected in 2024.
For such a unique company in the world, this is an attractive discount. But it is better to wait until the horse reappears, put on or not wear his dancing shoes, and then decide whether the stock is still worth the risk.
Write to Jack Hough, email: email@example.com. Follow him on Twitter and subscribe to his “Barron Weekly” podcast.