Driven by this $4.25 trillion offline retail opportunity, Alibaba Group Holding Ltd. stock is headed to a $220 price.
Shares of Jack Ma led, Alibaba Group Holding Ltd. (NYSE:BABA) have been on a roll in 2017. Alibaba stock is up by over 90% year-to-date, handily outperforming the S&P 500 (INDEX:SPAL), which is up 9.8% this year, and the Nasdaq Composite (INDEX:COMPX), which has gained 18.4%in the same time frame. The eye-popping gains haven't come without a rise in the number of doubters, which is reflected by the fact that the Chinese tech behemoth is now the most shorted stock globally, with over $22 billion worth of bets being placed against the Chinese e-commerce major. However, the company is targeting newer markets, as well as newer segments in current markets, which make Alibaba stock an attractive buy even after the strong run this year.
A $4.25 Trillion Opportunity Could Lift Alibaba Stock
As noted in our earlier coverage of Alibaba, Alibaba stock is helped to a large extent by strong momentum in its e-commerce business. However, the company intends to take its online retail dominance to the offline retail market. Why? Well, according to the internal management estimates, the offline retail (brick and mortar stores) market represents nearly 85% of the retail market in China and could be worth at least $4.25 trillion. If Alibaba can replicate its online success in the offline channels, the impact on Alibaba revenue/earnings growth and Alibaba stock price could be significant. And, how does Alibaba plan to execute on this offline retail opportunity?
Alibaba To Open 10K Stores.
More recent news indicates that Alibaba is serious about this massive opportunity in offline retail and has come up with a strategy/plan to gain a share of this huge market. According to China Money Network, 'The retail giant has now unveiled an even more ambitious plan to transform 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.' Author Yimian Wu goes on to add that this is only the first step in Alibaba's 'broader plan to turn as many as six million convenience stores into smart service centers' driven by Alibaba’s e-commerce infrastructure and capabilities in financial technology, logistics and travel services. And, not only is Alibaba serious about the offline retail opportunity, the company is also already implementing its plans, if recent reports are to be believed.
Alibaba Is Already Building Its First Brick And Mortar Store
As reported by caixinglobal.com, Alibaba is already constructing its first brick and mortar store. The report adds that the store will feature 5 stories and is set to be called 'More Mall', an apt name given that it symbolizes Alibaba's desire to capture 'more' of the Chinese retail market. According to the post, 'The mall was built on a 40,000-square-meter plot of land and is scheduled to open in April, according to linkshop.com. Currently, construction crews are finishing up work on the building’s interior.' To put things in perspective, Alibaba might well have its own brick and mortar store within six months from now. Given that these ambitions were only recently discussed on the company's earnings conference call, the speed of execution is laudable, to say the least.
As Joe Tsai, co-founder and Executive Vice Chairman of the Alibaba Group had said on the Alibaba Q1 2018 earnings call, 'Our goal is not to simply ride a wave of converting purchases from offline to online.' Alibaba is certainly doing more than just 'riding a trend' and by implementing an omnichannel strategy, the company is positioning itself to benefit from a far bigger market than what was previously thought.
As we had highlighted in our recent coverage, a price outlook of $220 appears to be a conservative estimate for Alibaba stock. The recent news of the company foraying into offline retail is further confirmation of the fact that the Alibaba growth story is truly alive and kicking. We reiterate our $220 price target on Alibaba stock and believe that long term investors should look to accumulate shares on any meaningful dips in the stock price.
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