Alibaba Group Holding Limited (NYSE:BABA) is providing roughly $171 million to Qutoutiao (NASDAQ: QTT)

Alibaba Group Holding Limited (NYSE:BABA) is providing roughly $171 million to Qutoutiao (NASDAQ: QTT)

Alibaba Group Holding Limited (NYSE:BABA) is providing roughly $171 million to Qutoutiao (NASDAQ:QTT)

One of China’s more obscure but fastest growing companies is getting some financial help from a dot-com giant. Alibaba Group (NYSE: BABA) is providing roughly $171 million to Qutoutiao (NASDAQ: QTT) in the form of a convertible loan. The transaction is convertible at Alibaba’s option into approximately 11.4 million shares of Qutoutiao at a price of $15 per American depositary share (ADS), or a roughly 4% stake in the mobile content aggregator.

It’s a win-win deal. Alibaba is able take a position in a niche online player that is growing quickly — Qutoutiao’s revenue soared 426% in its latest quarter . And if Qutoutiao falls out of favor (its shares have nearly doubled in 2019), Alibaba will at least collect the trickle of accrued interest on the loan.

Qutoutiao is an even bigger winner, and it has nothing to do with receiving $171 million in aggregate principal at a mere 3% interest rate. As an Alibaba investment, Qutoutiao just saw its credibility and exposure get a major boost. Merely being associated with Alibaba should open doors, and that’s exactly what Qutoutiao needs right now since, frankly, its balance sheet is already pretty clean with $334.9 million in cash and no debt before taking on this loan.

Aggregating the aggregator

Qutoutiao is one of this year’s biggest winners, and that was with the shares taking a 20% hit after serving up mixed quarterly results  earlier this month. The $193 million it scored in revenue was better than expected, but it also posted a larger loss for the fourth quarter than Wall Street pros were modeling.

The popularity of the mobile platform — where Qutoutiao uses AI to aggregate articles and short videos in customized feeds — is unquestionable. Average monthly active users have soared 286% over the past year to hit 93.8 million. Daily active users have also more than tripled, to 30.9 million. The sticky nature of its feeds is even more tantalizing, and the average time spent on the platform has nearly doubled to 63 minutes a day over the past year for its daily active users.

The deficits are a minor concern, and Alibaba’s infusion will help pad Qutoutiao’s liquidity by nearly 50%. However, this is all about increasing awareness of its platform as well as its ad-supported Midu literature mobile app. Alibaba’s presence can help do that, even if it doesn’t actively promote Qutoutiao’s offerings.

This has been a spectacular year so far for Qutoutiao investors, and that comes after a rough start to its rookie season. The company went public at $7  a little more than six months ago, but closed out 2018 as a broken IPO.

Growth will inevitably slow at Qutoutiao. Its guidance issued earlier this month calls for 149% to 181% top-line growth in 2019. It makes sense for Qutoutiao to strike while its momentum is hot, and giving up a 4% stake if its stock continues to appreciate should be a fair trade for investors, given the limited dilution — which won’t even happen unless the stock is trading nicely higher in the future than it is now.

Overall, the bias in prices is: Upwards.

The projected upper bound is: 187.19.

The projected lower bound is: 169.35.

The projected closing price is: 178.27.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 47.7232. This is not an overbought or oversold reading. The last signal was a buy 13 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 50.67. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 16 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -107.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 3 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 15 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 0.700 at 177.730. Volume was 60% below average (consolidating) and Bollinger Bands were 52% narrower than normal.

Open High Low Close Volume___
177.500 178.530 176.000 177.730 1,429,123

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 179.56 172.50 166.70
Volatility: 21 34 43
Volume: 2,395,542 2,929,900 4,092,982

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

ALIBABA GRP ADR is currently 6.6% above its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of BABA.N at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on BABA.N and have had this outlook for the last 5 periods.

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