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Alibaba Group Holding Ltd (NYSE:BABA) stock has recently seen a significant correction from its all-time highs. Should investors be worried about BABA stock prospects in 2018?
Shares of Jack Ma led Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) have come under pressure of late, correcting nearly 10% from their all-time highs. The mediocre Chinese retail sales numbers for November, which were out recently, did not help the cause of Alibaba stock. Despite its recent struggles, BABA shares are still up more than 97% in 2017. Now, with the stock struggling, questions are being raised whether BABA stock can continue its bull run in 2018 as well. We at waldorf-kras have been bullish about Alibaba stock for some time now, but a section of the investing community has some apprehensions about BABA stock's prospects in 2018. Is Alibaba stock a good pick for 2018?
A McKinsey report suggests Alibaba Group is on the right track.
Alibaba stock has surged on the back of strong double-digit revenue growth and rising profits. We have also highlighted in our most recent coverage on Alibaba stock, how the Chinese online retail giant is investing billions of dollars to keep its growth engine going. Alibaba also keeps on investing heavily in the technological capabilities of its Tmall and Taobao marketplaces. At the same time, Alibaba is aggressively following the omnichannel approach to capture the $4.25 trillion offline retail market as well. Now, if one goes by the recent study conducted by the McKinsey Global Institute in China, Alibaba's strategic investments could pay off in a big way.
To quote from the report, "Our simulation finds that digitization can shift and create value—on the order of 13 to 34 percent of industry revenue pool. The major force in play is disintermediation to deliver a new retail experience. In addition to continued growth of e-commerce as online sales penetrate further into rural areas, into smaller cities, and across borders, three additional trends are unfolding and transforming this sector: the continued evolution of an integrated omnichannel experience for consumers mixing offline and online, a transition toward data-driven business models, and a possible move upstream by digital platforms." The findings of the study suggest Alibaba could be one of the biggest beneficiary with market leader position in the Chinese online retail industry. The shift of 13-34% of the massive $4.25 trillion offline revenue pool in China is huge and Alibaba with all the investments in the trends stated above could capture a major share of the shift.
Further, the recent investment worth of $15 billion in its logistics firm Cainiao Smart Logistics Network over the next five years period does stand in good stead for Alibaba group in future. Alibaba stock had come under pressure when the company raised its stake in Cainiao from 47% to 51% by investing $800 million with concerns over the effect on the bottom line. However, the above McKinsey study findings again suggest this investment in Cainiao could have a big pay off. Cainiao's Data Intelligent Network utilizes data and technology to coordinate resources across a vast supply chain.
The McKinsey study findings in the freight and logistics sector in China suggest that "The cost of logistics as a percentage of GDP is around double the figure in the United States, reflecting operational and structural challenges. Our simulation finds that digitization can shift and create value equivalent to between 23 and 33 percent of the industry’s revenue pool." The Cainiao investment should help to enhance the overall logistics experience for consumers and merchants across the Alibaba ecosystem, as well as lower costs through greater efficiencies. All the above trends suggest Alibaba is on track for strong revenue growth going ahead in 2018 as well with strategic investments which will keep its growth engine going strong.
Alibaba stock looks good for 2018.
Wall Street has thrown its weight behind Alibaba stock. The analysts from investment houses like MKM partners and Raymond James reiterated their bullish stance on BABA stock. They stated that Alibaba stock "still has the best fundamentals among its mega-cap peers" and is likely to continue its strong rally in 2018 as well. According to Yahoo Finance, only 2 out 46 analysts have a hold rating on BABA stock, rest all have a buy or strong buy rating. We also strongly believe that Alibaba stock is a good pick for 2018, given the multiple growth opportunities for Alibaba group. However, the Alibaba stock technical chart suggests that the technical setup is not that favorable in the near-term. BABA stock is now facing resistance at its 100-day SMA which has been a major support level in 2017. Alibaba stock has fallen below the 100-day SMA recently only after going above it in January 2017. The next resistance level for Alibaba shares is at the 20-day SMA.
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