BABA Q3 Earnings Analysis
AliBaba and other Chinese companies are once again at the mercy of political circumstances between The U.S. and China. The company announced earnings this week and the stock plummeted after they canceled their cloud computing spinoff plans. Investors are were highly optimistic about this, but AliBaba cited U.S. tensions to be the reason behind the change of plans. Political tensions between the two countries are not new, for years we’ve seen foreign publicly traded companies experience volatility due to politics, but most of the time the storm passes and there comes a short period of time where foreign investments thrive.
It’s important to note, AliBaba’s change of plans doesn’t mean they will no longer pursue cloud-computing or artificial intelligence. The company is still focusing their efforts on innovation and still have plenty of other countries to export to. In terms of numbers, BABA reported 9% annual revenue growth and EPS gain of 21% YoY. The company is still bringing in well above $100B in revenue annually and has managed to maintain profitability for years. Free cash flow is around 25B, giving them an edge and a large safety net. Their price to earnings ratio is 18, which is considered undervalued compared to American companies producing the same financials.
All in all, our view on BABA remains bullish. The sheer drop it experienced after earnings was largely due to the “surprise” factor is the change of plans, but we’ve seen this before, and stocks with good fundamentals always bounce back.