A complete guide to Alibaba stock
FOREX.com August 13, 2021 11:28 AM
Alibaba handles more business than any e-commerce site in the world, but recently investors have shied away from the tech giant as it faces fines and regulatory measures from the Chinese government. Learn more about Alibaba’s business model, its recent troubles, and how to buy and sell Alibaba stock.
Alibaba: the basics
Alibaba trades on the NASDAQ stock exchange under the ticker NASDAQ:BABA. In 2014 its IPO on the NYSE raised $25 billion, the largest in U.S. history. Globally it’s the second largest IPO by market cap, with Saudi Aramco’s $29 billion debut on the Saudi Arabia stock exchange holding the record.
Lately, investors have been cautiously watching Alibaba amid heavy fines and penalties from the Chinese government over regulation and antitrust issues. After facing a $2.8 billion antitrust fine from the Chinese government in April 2021, Alibaba shares have experienced a bearish trend, losing the gains acquired during the COVID-19 pandemic and returning to pre-pandemic prices.
What is Alibaba’s business strategy?
Alibaba was founded in 1999 with a different approach to e-commerce than other major players like Amazon and eBay. Instead of providing businesses with a direct-to-consumer storefront, Alibaba initially focused on business-to-business sales.
The tech company allowed suppliers to sell wholesale to small and medium businesses around the world on Alibaba.com. It later expanded to include several different subsidiary ecommerce companies focused on directly connecting medium and small sized business to customers.
Alibaba has since expanded even further, offering a wide array of digital products and services to businesses such as digital ad space and cloud computing. The multinational technology company has also launched or acquired a range of other companies including a shipping conglomerate, an online travel platform, and even a chain of supermarkets.
Alibaba’s varied services and sites allow small ecommerce businesses to conduct every matter of business, from purchasing products wholesale to the payment and shipping of those products to retail customers.
What does Alibaba do?
Alibaba Group is a Chinese multinational technology company known chiefly around the world for its multiple ecommerce sites. The company is often described as Google, Amazon, eBay, and PayPal combined. While Alibaba includes dozens of companies, below are descriptions of some of their largest.
Launched in 2003, Taobao was the first Alibaba site to allow business to sell directly to individual consumers. Taobao does not charge commission or service fees to buyers and sellers on the platform. Instead sellers can pay to increase the position of their store or product in the platform’s search engine, similar to SEO advertising. The lack of fees attracts businesses to Taobao and creates a hyper-competitive marketplace, encouraging those businesses to buy paid promotion. As of 2019, Taobao had eight million active storefronts and more than one billion product listings.
Tmall was launched in April 2008. Tmall is similar to Taobao, but vendors allowed on this platform are premium brands already established in China including high-end labels. To sell on Tmall, brands must first pay a security fee of $25,000, then an annual fee of $5,000, and fees on every transaction ranging from 0.5% to 5%. The site ranks third in global internet traffic.
AliExpress is another retail marketplace launched by Alibaba in 2010, but this site allows consumers from across the globe to buy from Chinese-based vendors. While Taobao and Tmall focus on Chinese consumers, AliExpress advertises Chinese businesses to the rest of the world. AliExpress also charges vendors various fees and commission ranging from 5% to 8%.
Alimama is China’s largest marketing platform. It sells both pay-per-click advertising plans and other web advertisements based on impressions and time.
Alipay is an e-wallet platform integrated into all of Alibaba’s online marketplaces and featured on other ecommerce sites. After a purchase, Alipay withholds the buyer’s money until they report a satisfactory transaction, at which point the money is transferred to the vendor. Alipay doesn’t charge transaction fees, instead it invests the stored money and receives interest from a partner bank.
Alipay also serves as an app, allowing users to conduct all their financial transactions in one place. Users can open their first debit account, order a taxi, and buy insurance all within the app.
1688 is a wholesale marketplace similar to Alibaba.com. But 1688 is to Alibaba what AliExpress is to Taobao and Tmall. 1688 connects Chinese-based wholesalers and suppliers to businesses around the world. 1688 is free to list on, but sellers can pay premium fees to upgrade their storefront and gain access to data analytics.
Alibaba Cloud is Alibaba’s cloud computing software. business began as a private server to support Alibaba’s e-commerce businesses. Now Alibaba Cloud operates in eight different regions around the world, and the company reported profitable earnings for the first time in Q3 of 2020 since its founding in 2009.
Why are investors interested in Alibaba stock?
Alibaba is the largest company in China, and one of the largest in the entire world. It’s seen massive growth since its humble beginning in founder Jack Ma’s apartment. However, amid the coronavirus pandemic and recent regulatory tightening in China, Alibaba has been bearish for the first two quarters of 2021.
Some analysts could advise traders to buy the dip as Alibaba’s revenue continues to increase despite the falling share price. Others fear Alibaba is only the first of many tech companies that will experience slower growth against China’s campaign against anti-competitive practices.
However, Alibaba’s cloud computing software is a major interest for investors after current chairman Daniel Zhang said the company intends to make cloud computing Alibaba’s main business. The June 2021 quarter earnings report shows cloud computing revenue grew by 29% year-over-year.
How to trade Alibaba stock
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How does Alibaba make money?
Alibaba makes money through many different products and services, most of which have cropped up around the company’s ecommerce platforms. Their namesake site makes money from vendors based in China, Hong Kong, and Taiwan.
Alibaba also earns commission from every sale by the use of Alipay by its vendors.
The site offers tiered premium supplier memberships that allow sellers to list more items, verify their business on Alibaba, and promote their storefront ahead of nonverified sellers. It is important to note Alibaba does is not an online store and does not sell items itself.
Instead it allows venders and small business owners to sell and advertise on its many online marketplaces. In Q1 of 2021, Alibaba made two-thirds of their revenue from Chinese-based ecommerce, but the tech giant has numerous other sites and services that constitute the remaining one-third of their revenue. Many analysts contribute China’s rising middle class and swelling population as major factors for the company’s success.
Is Alibaba profitable?
Yes, Alibaba is profitable. In the company’s June 2021 quarter earnings report, Alibaba reported an operating income of $13.5 billion for the past 12 months with 1.18 billion global active consumers during that same period.
How much is Alibaba worth?
As of August 11, 2021, Alibaba’s market cap is $531 billion, and the company’s shares are priced at $196.60, higher than its post-IPO price of $115. Although it is worth mentioning Alibaba’s share price was $310 in October 2020 before dropping amid regulatory pressures from Beijing.
Who owns Alibaba?
Alibaba was cofounded by Jack Ma, Joseph Tsai, and 16 others in June of 1999. In 2019 Daniel Zhang succeeded Ma as executive chairman of the company. Since going public in 2014, the current top five shareholders of Alibaba are Softbank, Joseph Tsai (cofounder and vice chair), Altbaba, Blackrock, and T. Rowe Price.
Who is on Alibaba’s board of directors?Since Jack Ma stepped down in 2014 and was succeeded by Daniel Zhang, Alibaba’s board of directors has looked like this:
- Daniel Zhang, Chairman and CEO
- Joseph Tsai, Vice Chairman
- Maggie Wu, Director and CFO
- Michael Evans, Director and President
- Eric Jing Director
- Kabir Misra, Director
- Chee Hwa Tung, Director
- Walter Kwauk, Director
- Jerry Yang, Director
- E. Börje Ekholm, Director
- Wan Ling Martello, Director
What you should know before trading Alibaba stock
As previously mentioned, Alibaba shares have declined since October of 2020. The company has effectively lost the growth gained during the COVID-19 pandemic when online orders skyrocketed.
Alibaba initially ran into problems with Beijing regulators when they opened probes into various internet companies across China searching for illegal monopolization. The Alibaba affiliate Ant Group even canceled their IPO scheduled for November 2020 during the clampdown. Alibaba was eventually fined $2.8 billion by China for anticompetitive actions.
While share prices are down, Alibaba earnings continue to rise. Over the past five years, Alibaba’s annualized earnings have grown at a rate of 29% as the company continues to expand its businesses beyond ecommerce.
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