Alibaba Group Holding Limited (NYSE:BABA) Q3 2019 results come out mixed

Alibaba Group Holding Limited (NYSE:BABA) Q3 2019 results come out mixed

Alibaba Group Holding Limited (NYSE:BABA) Q3 2019 results come out mixed

Investment Thesis

Alibaba (NYSE:BABA) is by far and wide my best pick to choose from any overseas country. Further, the fact that it’s listed on NYSE certainly adds a much-needed crutch to my margin of safety. Overall, Alibaba is tremendously undervalued.

Background

In the way of background into my investment style, in case you have not read my work before, I’m a value investor. Hence, I’m apathetic to any temporary political headwinds which may be taking place and causing investors needless panic and uncertainty. On the other hand, I am focused on finding free cash flow cheaply and being patient to see my investments pull through.

While Alibaba continues, in my opinion, to be thoroughly undervalued, frankly, it did come out with a mixed set of results. I shall highlight the positives first followed by the negatives.

Q3 2019 Results – The Positives

On the plus side, Alibaba continues to resolutely seek out market share in an increasingly digital backdrop of the Chinese economy. In more detail, through a focus on innovation, Alibaba now has 699 million MAU. Having these huge numbers spending regularly through Alibaba’s platforms do not appear to be accounted in any sort of way accounted for in Alibaba’s $435 billion market cap valuation.

As a way of comparison, while back in the U.S., Amazon’s (AMZN) revenue growth rate has now slowed down and is unlikely to cross back into the mid-20% growth rates for some time. On the other hand, during Q3 2019, Alibaba saw its Core Commerce continue to grow and posted 40% YoY growth.

Furthermore, what Alibaba’s Core Commerce platform continues to do terrifically well is sell its users value-added services. For example, Alibaba’s customer management revenue grew 28% in the quarter. Alibaba was able to drive forward this revenue through a combination of a large active user base and increased user engagement. Once again proving that having a large market share continues to play exceedingly well for Alibaba platforms.

Q3 2019 Results – The Negatives

While Alibaba’s Cloud Computing operations continue to grow at a mightly strong clip of 84%, this segment still remains unprofitable – which is impressive.

Once again, by comparing with Amazon (NASDAQ:AMZN). Amazon’s AWS is extremely profitable. Additionally, other cloud providers too, such as Microsoft’s (NASDAQ:MSFT) Azure, are also being noted as driving forward Microsoft’s already high margins even higher. So, why is Alibaba’s Cloud Computing not only not very profitable but actually a drag on profitability?

One could make the argument that Alibaba’s goal, for now, is to increase the stickiness of its ecosystem. That its Cloud Computing segment is less about Software as a Service (‘SaaS’) but more about building out the infrastructure and making it seamless for businesses in China to adopt Alibaba’s cloud platform as their chosen platform.

Finally, one further negative in Q3 2019. When all was said and done, Alibaba’s income from operations was only up 3% YoY to RMB26.8 billion. Having said that, one could objectively make the argument that this is a stark improvement from the trend of the trailing 9 months, where Alibaba’s income from operations had actually declined 19.6% from RMB60.1 billion to RMB48.3billion. Nevertheless, on balance, it is difficult not to find Alibaba undervalued.

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 156.02.

The projected upper bound is: 179.27.

The projected lower bound is: 158.53.

The projected closing price is: 168.90.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.

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 43.1545. This is not an overbought or oversold reading. The last signal was a sell 3 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 64.29. 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 3 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 64. This is not a topping or bottoming area. The last signal was a sell 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 0 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 1.260 at 168.710. Volume was 53% below average (consolidating) and Bollinger Bands were 4% wider than normal.

Open High Low Close Volume___
169.700 170.490 168.610 168.710 2,062,357

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

Moving Averages: 10-period 50-period 200-period
Close: 168.38 152.31 169.38
Volatility: 43 44 43
Volume: 3,000,673 4,041,382 4,281,080

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 0.4% below its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume into BABA.N (mildly bullish). Our trend forecasting oscillators are currently bullish on BABA.N and have had this outlook for the last 20 periods.

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

You must be logged in to post comments :  
CONNECT WITH