Taobao and Tmall together represent almost 87% of Alibaba's revenue. While Alibaba has plenty of room left to grow within China, international expansion opportunities have investors watering at the mouth. The first Web site from Jack Ma, the now almost mythic founder of Alibaba.com, connects U.S. shoppers directly to merchants in China. But international commerce still only represents 8.8% of Alibaba's total revenue.
Alibaba operates on a huge scale, it's growing at an insane rate, and it holds high profit margins at roughly 40%. Sales growth projections of roughly 30% to 50% per year have Alibaba seeing a potential earnings based valuation of $150 billion within a year or two. Some think that international expansion will see sales grow even more quickly than that. But the company also owns roughly $25 billion worth of equity stakes in other Asian and Western Internet companies. Private-company research shop PrivCo is valuing Alibaba at $195 billion, and other analysts have suggested it could see an even higher valuation when it's listed publicly in the U.S.
The size and growth of Alibaba are monstrous but may there may be a few reasons to pump the brakes. Alibaba's market share is off the charts, it controls some 80% of all Chinese e-commerce across its various Web sites. If Alibaba were located in the U.S. the antitrust folks would be having a field day. But in China state sponsored and state favored companies have and can operate on monopoly like scale. And the Chinese government does have a track record of protecting its exports. However, some regulatory risk will always be in play when you are talking about a company that has 80% market share and controls a dominant online payment platform in Alipay.
The other question is simply a matter of valuation. No matter how much a company earns or how fast it's growing, the stock price is only worth what someone else is willing to pay for it. Alibaba is the dominant player in Chinese online shopping and will probably become the No. 1 equity for e-commerce in all of Southeast Asia soon. For the foreseeable future there will be no better way to gain exposure to the booming Internet economy in Asia than Alibaba stock. The exact details of the IPO valuation are not available yet, but any price that gives Alibaba a market capitalization of less than $140 billion will by all indications go favorably for investors.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts