China's challenging regulatory system has flexed its muscles once more forcing, what was expected to be the largest IPO in history to delay its public listing. Ant Group's highly anticipated dual-exchange IPO has been suspended because of the presently vague abrupt regulation changes that appear to undermine Ant's key profit drivers.
Chinese regulators have been probing Ant's microloan business since the fintech powerhouse began preparing its shares for their public debut. Late Tuesday, two days before the anticipated IPO, the Shanghai Stock Exchange suspend Ant's listing, citing a change in fintech regulations. This triggered Jack Ma to cease the Hong Kong listing as well.
China regulators are sending a wake-up call to Jack Ma and the rest of the Chinese tech industry to who is running the show. China's communist feels that Jack Ma's fintech behemoth challenges its state-run banking enterprises.
The BABA Opportunity
BABA Quick Quote BABA - Free Report) shareholders felt Ant's IPO blunder with these shares gapping down as much as 9% in Tuesday's early morning trading on the New York Stock Exchange. Alibaba owns 33% of this fintech trailblazer, and the company's shares had been lifted by the overzealous demand for Ant's pre-IPO shares.
This Ant-focused regulatory shift could throw a wrench in Ant's perceived valuation and, in turn, BABA.
Ant represents roughly $38 of every BABA share (at the anticipated IPO valuation of $316 billion), and its continued growth strengthens Alibaba's already firm grip on the rapidly digitalizing Chinese economy.
Alibaba has a cornucopia of digital products at its disposal, and it will use all of them to control and profit off the prolific digitalization occurring in Asia today.
The fact that the Amazon (
AMZN Quick Quote AMZN - Free Report) of the East (aka BABA) has not taken off to the extent of its western counterpart is baffling. Alibaba controls the e-commerce space (80% market share), the cloud-computing category (roughly 50% market share), and a 33% stake in the leading FinTech in the most populous and soon-to-be largest economy on earth.
Alibaba is valued at less than half of Amazon despite producing substantially wider margins, greater profitability, and having a more extensive revenue growth outlook for the next couple of years.
This stock still has a massive amount of upside potential, just waiting to be priced in. The Chinese economy is beginning the recover past pre-COVID growth rates, with Alibaba's digital technology being the centerpiece to this expansion.
Ant's IPO fumble is just a small hiccup in Alibaba's tech dominance in the East. BABA's dip below $300 presents us with a savvy buying opportunity before the company releases its September quarter results tomorrow morning (November 5th).
BABA Quick Quote BABA - Free Report) may be preparing to release a record quarter in its earnings release before the market opens tomorrow. According to Zacks Consensus estimates, the street expects BABA to report an EPS of $2.06 on sales of $22.97 billion. This would represent year-over-year growth of 12.6% and 38%, respectively.
I am a little apprehensive about suggesting a tech stock prior to its earnings release due to all of the profit pulls I have seen from some of the most parabolic stocks following earnings beats. Its Western competitor is one such example. Amazon (
AMZN Quick Quote AMZN - Free Report) beat big on top and bottom-line estimates but had a price action of (-4%). AMZN's rich valuations gave investors a reason to take their money and run after seeing what they wanted from its latest quarterly report.
BABA hasn't seen the same manic returns as AMZN or the many other profit-pulling tech counterparts. Regardless, this is still a risk. Keep your eye on management's forward guidance as this could be the stock's post-earnings driver. BABA is expected to beat the consistently conservative estimates.
Today BABA is recovering lost ground as the broader market catches a big bid. I think this stock is an excellent long term buy at any price below $300 a share.
The public markets are now pricing in a divided government, aka the "Purple Wave," which I discussed in my recent article
: Election Day Rally Points To Opportunity. The markets are getting a charge this morning as the regulatory/policy status quo looks to be something investors can count on.
Despite BABA being a Chinese enterprise, the stock still trades with US tech. If Biden takes the Oval Office, I am confident that this would be a win for Chinese tech giants like Alibaba. Biden's regime is not expected to be as tough on trade as Trump's current administration, which could give foreign tech giants like Alibaba and JD (
JD Quick Quote JD - Free Report) flexibility to expand their addressable market. Final Thoughts
16 out of 16 analysts have a buy rating on this stock today with price targets that have progressively enlarged with the stock's rally. The long-term opportunity in BABA is enormous, with its control of some of the fastest-growing tech spaces in a rapidly digitalizing economy.
Ant's stumble has opened up a 'buy the dip' opportunity for BABA. Look for Alibaba's quarter results tomorrow morning (November 5th) for more color on where this company is headed.
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