In the past, Alibaba (BABA -0.94%) was often viewed as the Amazon (AMZN 0.01%) of China. But the stocks of the two companies have been on completely different paths over the past decade. While Amazon's stock is up more than 1,400% in the past 10 years, as of this writing, Alibaba's stock is actually down more than 15%.
While its stock has struggled, Alibaba's operational performance has actually been quite solid over the past 10 years. The company grew its revenue more than 10 times from $12.3 billion in 2015 to $130.3 billion in 2024. Meanwhile, its operating income rose from $3.9 billion in 2015 to $14.1 billion in 2024.
While growth slowed the past few years, the company is working to reignite growth. Let's see if the stock has what it takes to be an investment that sets you up for life.
The Amazon of China
Like Amazon, Alibaba is involved in e-commerce, logistics, and cloud computing, among other businesses.
Within e-commerce, it owns the popular Tmall and Taobao platforms. Tmall is a business-to-consumer marketplace in China that established brands use to sell their goods. Taobao, meanwhile, allows both businesses and consumers to sell on its platform.
Growth within Alibaba's e-commerce segment has recently been slow due to a sluggish Chinese economy and intense competition -- particularly from rival PDD Holdings, which owns the popular Pinduoduo platform in China. Revenue for Alibaba's Tmall and Taobao segment only increased 1% last quarter.
However, following a period of investment into its platforms to improve price competitiveness, technology, and customer service, Alibaba implemented a new software service fee based on the gross merchandise value of completed transactions on its platforms, replacing an annual service fee on its Tmall platform. It also has started to see good uptake with its new artificial intellingence (AI)-powered platform-wide marketing tool Quanzhantui. Together, these initiatives should start to reignite revenue growth.
Within e-commerce, Alibaba also owns two fast-growing cross-border platforms: AliExpress and Trendyol. Last quarter, this segment saw revenue jump 29% to $4.5 billion. Currently, the company is working to build the platforms in Europe and the Gulf region in the Middle East. As such, this segment is not yet profitable.
Image source: Getty Images.
Also similar to Amazon, Alibaba has a cloud computing business, but unlike its U.S. counterpart, this is not its most profitable business. This segment grew revenue by 7% last quarter, while segment EBITA (earnings before interest, taxes and amortization) soared 89% to $379 million. The company has been letting low-margin project-based contracts roll off, which has impacted revenue growth but improved profitability.
Meanwhile, Alibaba has seen five straight quarters of triple-digit revenue growth from AI-related products and services. While it doesn't have access to the latest AI-chip technology that U.S. companies do, Alibaba is nonetheless investing heavily in AI-related cloud infrastructure. In September, it launched more than 100 new open-source AI models as well as a text-to-video generation tool. However, it recently slashed prices on its large language models to drive adoption as competition in the space remains heightened in China.
A cheap stock with a good upside
From a valuation perspective Alibaba is incredibly cheap, trading at a forward price-to-earnings (P/E) ratio of less than 9 times based on next year's analyst estimates. Meanwhile, it has $43.6 billion in net cash on its balance sheet plus another $49.1 billion in equity security investments in the companies it owns, including Ant Group, Xpeng, and Weibo, among others. Excluding just its net cash, it trades under 7 times forward P/E.
BABA PE Ratio (Forward 1y) data by YCharts
Not surprisingly, Alibaba's valuation has attracted some big investors, including billionaire investor David Tepper of Appaloosa Management. The stock was Tepper's top holding at the end of Q3, representing more than 15% of his portfolio. Tepper appears to be a big fan of Chinese stocks, with PDD and JD.com also among his top 10 holdings.
The Chinese government has been trying to stimulate its economy, and there are further calls for this to continue in 2025, especially with threats of increased U.S. tariffs. A better domestic economy would go a long way toward helping Alibaba and its stock. Meanwhile, the company has taken strides to improve its e-commerce and cloud computing businesses. It also generates a lot of cash, which it has been using to buy back shares.
If Alibaba were to trade at a similar valuation to Amazon, it would have close to 4 times upside, while if it grew to the size of Amazon it would have have more than 10 times upside. While I don't think either of those scenarios are likely, I do think Alibaba can rebound and that its valuation multiple can nicely increase, giving investors solid upside potential. But an investment in the stock isn't likely to set you up for life.
