Putting it lightly, the past few years have been rough for e-commerce giant Alibaba Group (BABA 0.86%). After reaching highs in October 2020, the company lost close to 80% of its value in the next two years. It has since gone on a rally, up around 78% from its October 2022 low, but it's still far from pre-COVID-19 pandemic levels.
Needless to say, it's been a roller-coaster ride for Alibaba and its investors. And although the company has considerable ground to make up and challenges ahead, here are three reasons I'm bullish on it in 2023 and beyond.
1. China seemingly slowing its lockdowns
China's zero-tolerance policies surrounding COVID-19 undoubtedly took a toll on Alibaba. The lockdowns hurt China's overall economic activity, and given Alibaba's size and how ingrained it is in the Chinese economy (which is the world's second largest), they had a direct impact on the company.
Aside from people spending less during China's lockdowns, the policies also hurt Alibaba's logistics network, in part because of road and highway closures. All of this led to the company posting its first-ever period of flat year-over-year revenue growth in its June 2022 quarter.
But brighter days should be ahead. No one can say for sure when China will reopen fully, but some parts of the country began taking steps in that direction in December 2022. If it's similar to the U.S., China's reopening could accelerate economic growth because of increased spending and household consumption. Alibaba should benefit as this takes place.
2. Growth of its cloud business
Cloud infrastructure and services are becoming a prominent part of any business that uses the web for its operations. In just the third quarter of 2022 alone, global cloud infrastructure service spending increased to $57 billion, bringing the industry total for the past 12 months to $217 billion.
With a 5% share of the market, Alibaba Cloud lags behind market leaders Amazon Web Services, Microsoft's Azure, and Alphabet's Google Cloud in market share (with 34%, 21%, and 11%, respectively), but it's trending in the right direction.
For the quarter ended Sept. 30, 2022, Alibaba Cloud revenue grew 4% year over year to over $2.9 billion, driven by its public cloud growth. More encouraging, though, should be the growth of Alibaba Cloud's non-internet industry (NII) customers. Its NII customers grew 20% year over year and accounted for 58% of its overall cloud revenue.
These strong results were driven by public services, telecom businesses, and financial services. Cloud services are an integral part of the operations of all three of these areas, which could lead to long-term recurring revenue for Alibaba.
The global cloud computing market is projected to reach over $1.7 trillion by 2029, at a compound annual growth rate of just under 20%. Even if Alibaba Cloud isn't able to crack the top three in market share, there should be plenty of room to succeed as the overall pie expands.
3. The departure of Jack Ma from Ant Group
It didn't come as a shock to many when Jack Ma, the founder of Alibaba, announced he was stepping away as chairman. Although Ma oversaw much of Alibaba's growth and success, his departure wasn't too impactful on the company because the leadership had already been in new hands for all intents and purposes.
However, many more were shocked when Ma announced he was giving up control of the fintech giant Ant Group, in which Alibaba owns a 33% stake. Ant Group was slated to go public in November 2020 at around $37 billion, but it was canceled last minute largely because of regulatory scrutiny.
With Ma no longer in control of Ant Group, there's much more of a chance that the company could resume its initial public offering (IPO) process although it likely won't be seamless. An Ant Group IPO could bring Alibaba a large cash infusion to utilize as lockdowns ease in China.
