U.S.-China Trade War Puts Alibaba in the Spotlight

How will the outcome of the U.S.-China trade war affect Alibaba? The answer is probably not what you think.

With U.S.-China trade war news dominating headlines (and leading to both up and down moves depending on the day), let’s take a look at the company many consider the proxy for China’s economy and market: Alibaba (NYSE: BABA).

On the surface, you might think the outcome of this trade war would have a big impact on Alibaba. After all, Barron’s says the company is “like United Parcel Service, FedEx, Goldman Sachs, eBay and PayPal all rolled into one – and it keeps spreading across Asia like an inexorable tide.”

Knowing that, it would appear that details of the trade dispute – or a deal to end it – would be a very big deal, right?

Well, not entirely. At a recent investor briefing, Alibaba Executive Vice Chairman Joseph Tsai revealed the trade war would actually have a very minimal impact on the company. Specifically, he said, “Concerns about trade tensions might affect sentiment, but Alibaba’s exposure to the tangible effects of trade tariffs is small.”

In other words, growth in Alibaba’s key businesses (e-commerce, cloud computing and consumer services) is primarily driven by domestic consumption, not exports. That’s why Tsai said investor sentiment is really the only thing affecting Alibaba in the trade war news flow.

Take one look at Alibaba’s 2017 and 2018 revenue growth and you’ll see what he means:

  • Alibaba’s revenues grew 56% year over year to $12.8 billion in the December quarter of 2017.
  • Alibaba’s revenues grew 41% year over year to $17.1 billion in the December quarter of 2018.

For the sake of comparison, Alphabet (Nasdaq: GOOGL), Amazon (Nasdaq: AMZN) and eBay (Nasdaq: EBAY) reported year-over-year revenue growth in the December quarter of 2018 of 22%, 20% and 6%, respectively. So clearly, Alibaba is outperforming even the strongest U.S. companies.

Looking at the two-year weekly chart, it appears Alibaba is about to move above October resistance and could enter a void that runs from $170 up to $210. That’s quite a move – especially after such a powerful bounce off the $130 support in early 2019.


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