Alibaba Stock (BABA) Analysis in 6 Minutes!

Alibaba is a massive Chinese e-commerce company. They’re essentially the Amazon of China. Most of you watching this are probably familiar with Alibaba. Today we’re quickly going through the numbers as well as the weird factors regarding China. And most importantly I’m going to give you my opinion on this whole Alibaba situation and hopefully provide you a new perspective on this investment.

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That’s as deep as we’re going to go into the financials. It only takes a quick peak to see that Alibaba is insanely undervalued from a numbers standpoint. There must be some pretty interesting reasons why Alibaba is priced the way it is.

The first thing to point out is that when you buy the ticker symbol BABA, you are not actually gaining equity ownership in Alibaba. You own a piece of paper with grants you claim to a Variable Interest Entity that has contractual rights to Alibaba’s profits, but not the company itself. This is completely different to our traditional understanding of buying stock and owning public companies, and this structure could disintegrate at the whim of the Chinese government.

Do I really think the Chinese government would intentionally mess with this setup and devastate American investors? No, but China does crazy things, and it’s really impossible to predict what they’re going to do. Remember, they are a communist country and have way less transparency and consistency when compared to the United States.

Another big uncertainty has to do with the Chinese government’s direct treatment of Alibaba. A few months ago they slapped Alibaba with a $2.8 billion fine for an antitrust violation. $2.8 BILLION! Even for a company Alibaba’s size, this is a big hit. They’ve also been penalized by the government for other random reasons, and it really starts to look like extortion. Where’s the end to this sort of stuff? Oh, and don’t forget about the mysterious 3-month disappearance of the CEO Jack Ma.

In my opinion, a person wanting to invest in Alibaba needs to ask themselves the following question: Do I think the Chinese government is going to radically interfere with Alibaba’s operations and/or do away with Chinese ADR’s? If the answer is no, it might make sense to invest in Alibaba. But I would caution folks who are looking to put money into Alibaba to limit their size. Perhaps a small single digit percentage of portfolio value allocated is enough exposure given the risks involved. Also keep in mind that it likely won’t be Alibaba fundamentals that drive the stock higher. Instead, it is going to be the restored confidence of American investors.


DISCLAIMER: The topics covered in this video, and my others, are opinion and should not be considered financial advice. This channel is for fun and entertainment only. Be sure to consult with a professional investment advisor before making financial decisions.