Massive Investments Will Drive Alibaba Stock Higher

Alibaba Group Holding Ltd (NYSE:BABA) is investing billions of dollars to keep its revenue growth going.

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Recently China-based eCommerce giant Alibaba Group Holding Ltd (NYSE:BABA) announced a bond issuance of $7.5 billion. This comes on the back of $5 billion syndicated loan the company had secured from 13 banks in May. This is despite the fact that Alibaba generates billions of dollars in free cash flows every year. So why this borrowing? Alibaba is trying to keep the growth engine running by expanding into various geographic and product markets. The company is expecting the strong revenue growth to continue driving BABA stock higher. Alibaba stock is already up around 100% driven by very strong quarterly performance.

Alibaba Group goes offline.

Alibaba has been investing heavily over the years. Last year alone, the Chinese eCommerce powerhouse reported an outflow of more than $11 billion from investment activities. And the trend is likely to continue. Alibaba recently announced that it is buying more than 75% stake in the Sun Art Retail Group, one of the largest Chinese supermarket chain, by investing $2.9 billion. This strategic purchase is Alibaba’s largest investment in the offline retail market and will help Alibaba’s offline strategy. The company will also benefit from synergies if data, supply chain and purchases can be fully integrated. Like most other retail stores, Alibaba is increasingly pursuing an omnichannel strategy to conquer a bigger chunk of the retail market, as well as benefit from the synergies of online and offline presence. Alibaba is already constructing its first brick and mortar store. Amazon is also following a similar strategy.

Offline is one of the largest growth areas for Alibaba. Offline makes up 85% or $4.25 trillion of the $5 trillion Chinese retail market. Apart from the recent investment, Alibaba is also converting 10,000 mom-and-pop convenience stores across China into a vast network of Tmall.com brick-and-mortar outlets, where consumers can shop, pick up packages, make orders online or even apply for and receive small loans.

Alibaba Group has committed $30 billion in investment.

Alibaba has recently announced $15 billion in tech research and development over the next three years. The investment will be through a program called Alibaba DAMO Academy which will seek to increase collaboration in the fields of data intelligence, Internet of Things, Fintech, quantum computing and human-machine interaction. Alibaba is betting on these fields to become important growth engine in future.

Alibaba Group has also planned another investment worth of $15 billion in its logistics firm Cainiao Smart Logistics Network over the next five year period. Earlier the company had raised its stake in Cainiao from 47% to 51% by investing $800 million. Cainiao is a fast growing loss-making data and software business. In the last couple of years, its revenue grew by tenfold. And Alibaba is betting on the growth in the company to continue and help in Alibaba’s overseas expansion. Cainiao has been one of the key factors behind Alibaba Group’s success by smoothing out friction on the logistics front. Cainiao’s Data Intelligent Network was built to utilize data and technology to coordinate resources across a vast supply chain.

These investments are expected to enhance the overall logistics experience for consumers and merchants across the Alibaba ecosystem, as well as lower costs through greater efficiencies. Alibaba plans on fulfilling orders in China within 24 hours and within 72 hours anywhere in the world. “Our commitment to Cainiao and additional investment in logistics demonstrate Alibaba’s commitment to building the most-efficient logistic network in China and around the world,” Alibaba CEO Daniel Zhang said in a statement.

Alibaba has also invested heavily in other geographies like south-east Asia and India. It had topped its investment in the Lazda group by another $1 billion a few months ago. Alibaba had invested $1 billion in Lazda group last year. Alibaba also made a $100 million investment in Bigbasket, the biggest online grocery player in India and several hundred million dollars in Paytm mall which emerged as India’s third largest eCommerce platform during the recently concluded festive season sale. Overall, Alibaba has a strong plan for driving future growth.

Despite record sales, Alibaba stock is down.

After rallying by over 115% this year, Alibaba stock has declined in the past week or so. Alibaba stock is down over 8% in the last one week. This is despite the company reporting record sales during the Singles Day event. Alibaba’s annual one-day shopping extravaganza produced a 39% rise in gross merchandise volume. One of the major reason for this decline was the sell-off in the tech stocks globally. Last Wednesday alone, the Nasdaq 100 Index fell as much as 2.2 percent while every stock in S&P 500 Semiconductor Index declined.

Alibaba technical charts are flashing some strong bearish signals after the correction. The Moving Average Convergence Divergence indicator crossed below the signal line and is about to make a bearish crossover with the center line indicating that bearish momentum could continue. BABA stock also breached the support from its 50-day moving average line. As can be seen in the technical chart, 50-day moving average has provided strong support for Alibaba stock throughout the year. The next support is from the 100-day SMA which is 4 handles lower. Last time Alibaba stock closed below 100-day SMA was in January this year.

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