Shopping at Alibaba Is the Chinese National Sport

Regardless of how Alibaba performs on Singles Day on Wednesday, its stock is the best way play the growth in the Chinese middle class.
By Chris Laudani ,

Regardless of how Alibaba (BABA) - Get Report performs on Singles Day on Wednesday, its stock is the best way to play the growth in the Chinese middle class.

Wednesday kicks off "Singles Day" in China, basically a 24-hour orgy of shopping. Six years ago, Alibaba popularized the holiday as a sort of anti-Valentine's Day. Each year Singles Day gets larger and larger.

Last year on the holiday, Alibaba generated $9.3 billion in sales with 2.85 million payment transactions processed per hour. The company reportedly shipped 278 million orders in 24 hours. To put that in perspective, last year on Cyber Monday, sales in the U.S. brought in $2.7 billion in sales.

Analysts expect Alibaba to report $12 billion in sales Wednesday, up 30% over last year.

By 8 a.m. local time, Alibaba had processed 41.7 billion yuan ($6.5 billion) in sales. That's more than Americans bought on their desktops in the five-day period between Thanksgiving and Cyber Monday last year. Sales reportedly passed $1 billion within the first eight minutes.

Since 50% of Chinese don't have Internet access, virtually the whole country is sending presents to their single friends through their phone. According to the company, approximately 72% of sales were from mobile phones. 

Although Amazon (AMZN) - Get Report hasn't always delivered profits, Alibaba is profitable, since the company earns money largely through ads and add-on services for its vendors.

The consensus thinks Alibaba revenue will rise 23% in fiscal 2016 to $15.1 billion, and 27% in 2017 (to $19.2 billion) driven by growth in mobile phone and e-commerce penetration in China. Per American Depositary Share, analysts are expecting $2.52 in 2016 and $3.18 the following year.

According to Goldman Sachs, China is the largest online market in the world. Currently, online sales account for just 11% of total retail sales, with just one in four people shopping online. The Chinese save almost 40% of their total earnings, vs. 12% in developed countries, so that makes Chinese consumers a powerful force.

Investors have concerns about the slowing Chinese economy, and some worry about the company's accounting, but I think those concerns are over blown. Alibaba is the single best way to play the growth of the Chinese middle class.

I think the stock can work its way back to its 52-week high of $120 over the next year, as investors gain confidence in the company and the power of the Chinese consumer.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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