5 Key Takeaways from Alibaba Investor Day 2021 (and should investors continue to hold?)

Alibaba held their 2021 Investor Day over the course of 2 days between 16th – 17th December 2021. Being heavily vested in this company, this presentation are most certainly of interest to me.

In my previous article on Alibaba’s Q3 results, I mentioned:

• Alibaba will continue to invest heavily into – domestic consumption, globalization, and cloud computing. all of which will help to to “establish solid foundations for our long-term goal of sustainable growth in the future.”  
• What wasn’t particularly optimistic which added more weakness to the stock was how “The company also slashed its revenue guidance for its current fiscal year. It previously expected to bring in 930 billion yuan, which would have been about 29.5% year-on-year growth. But it now expects growth to be between 20% and 23% year-on-year.”

In any situation, if a company comes out and say “hey my revenue will be lower in the future”, it is almost certainly bad news for the price and indeed a bear rally ensued (Alibaba was -10% after its Q3 results).

This Investor Day presentation helps to address the concerns of investors and most importantly reassure investors that the company does have a plan to get itself back on track.

With over 8 different presentation decks and almost 200 slides, Alibaba shared many insights. I’ve extracted the 5 key takeaways investors should bear in mind as we continue to HODL all the way through 2022 and beyond.

1. Expanding its Addressable Market

Ask anyone on the street and chances are that they would probably have heard of Alibaba. With this comes the common misconception is that Alibaba has a large GLOBAL market share and therefore, their revenue may start reflecting down from here. This leans investors toward the argument that Alibaba is more of a value stock than growth stock.

While I acknowledge that there are certain factors that analysts may infer to make sure a deduction, I am compelled to think that there are growth elements in this company that have yet to be unlocked, due to how small their market share is in EMEA (Europe, the Middle East and Africa) and SEA (Southeast Asia).

This indicates that while they do have a large market share within their China Core Commerce, on a global stage, they are still a relatively small player with much room to grow. This is also in line with how Alibaba is making globalization, its strategic long-term goal.

2. Alibaba is positioning itself for the metaverse

What I like about Alibaba is how they avoided emphasizing too much about their efforts into the Metaverse, even during the hype. After combing through all their slides, the word Metaverse probably shows up only once or twice in their Cloud Technologies Slides.

It is easy for any company to harp on their metaverse ventures and go on to talk about how it would reap lots of gains in the future.

However in the case of Alibaba, I’ve found their focus to be a little more grounded in technology that may result in a nearer-term material impact on their financials.

In my opinion, autonomous robots could be the most tangible as it is already technology that Alibaba is working on to increase their margins.

3. China Core Commerce is tanking losses from other units

Here’s a breakdown of all the business units which Alibaba operates:

Apart from their China Core Commerce, everything else is losing money and it is clear that the EBITA from their China Core Commerce is tanking the losses from the other units.

Depending on which side of the fence you are on, the bull case can be that Alibaba is “reinvesting” back into itself in which case it is doing a pretty good job of turning a profit despite having operating business units that are not profitable.

The chart below that adds another point for the bull case. Upon closer analysis, we can see that most of their “newer” business units are expected to perform better by the time the 1H22 report is due. With narrowing losses, it can be a possibility where such business units may eventually turn profit in the near future.

4. Robotic Process Automation could be a segment to watch

While reading the investors day presentation, Alibaba’s developments in Robotic Process Automation (RPA) caught my eye. I’ve covered RPA before in my article on Uipath but for those unfamiliar to it, RPA is about using robots to complete monotonous everyday tasks.

I would consider RPA a hyper-growth sector that is actually well within the scope of ARK Invest even till today. In the diagram below we see ARK loading up on a UIPATH, a company that specializes in RPA. All I can say is, “know the value of what you are holding”.

5. Fighting for a bigger E-Commerce pie in SEA with Lazada

Here’s something a little closer to home.

While there are fears of a stagnating E-Commerce market in the Chinese Core, I dare say that the E-Commerce boom throughout the rest of SEA is far from its peak. By estimates, the compounded annual growth rate (CAGR) of SEA’s market size by gross merchandise value (CMV) is expected to grow by 27% from 2020 to 2025.

At present, growth in SEA does not appear to be slowing given the statistics below. As Alibaba has set their sights on globalisation to markets beyond China, I must say that the statistics are indeed encouraging for a start.

The only question which remains is the breakeven point for their international commerce business unit given that they remain loss-making despite their increasing traction.

Like it or not, Alibaba is doing something…

When a company is under fire, it can take things lying down or it can continue to strengthen its resolve and plan its come back. In my opinion, I don’t know how much longer the crackdowns will last on Alibaba but at the very least, this conference gives me the confidence as an investor that they are doing something about the situation.

Perhaps management has the foresight to see that such harsh regulations are temporary and that there is a bigger picture to consider.

What are your thoughts on the macro environment which Alibaba is operating in at present? Share your thoughts in the comment section below.