I’ve built my fortune buying quality penny stocks and short selling scams, but Alibaba, the giant Chinese e-commerce company, just IPOed as their stock on the U.S. stock markets Friday and my email inbox is stuffed with questions asking for my opinion. So here are three different takes.
Take #1: It’s the most profitable and highest valued e-commerce company in the world
Many Americans mistakenly believe Amazon.com has won this title, but they’d be wrong. Alibaba has ¼ the employees and roughly 1/10th the revenues of Amazon, but their profit margins are an astounding 50 percent compared to just 1 percent for Amazon. That’s why Amazon is valued at “only” $150 billion while Alibaba is currently valued at $230 billion.
We Americans need to get over thinking we’re number one in every category and realize emerging countries like China have huge populations, a craving for purchasing goods on the Internet and companies like Alibaba are focused on being hugely profitable, as opposed to Amazon which is very innovative, but many of their projects have absolutely terrible profit margins which has hurt the company as a whole.
Take #2: Foreign markets follow different rules
As many smallcap and penny stock investors have learned the hard way, Chinese companies are not subject to the same strict SEC and accounting requirements as U.S. companies and therefore all of their revenue and profit numbers and forecasts must be taken with a grain of salt.
A few years ago, I spent a month in China exploring ways to grow my financial educational business there and came away with the feeling that I NEVER want to do business there as anything you make will be copied and sold at a massive discount to the ravenous Chinese consumer. It’s truly buyer beware in China and in Chinese stocks.
Take #3: The stock market is a battle
A case can be made that Alibaba is conservatively valued, even at $230 billion, because they’re fast growing, profitable and their target market is incredibly large and has quickly become devoted customers. But you can also say that the market in China is like the “Wild West”, with great volatility and there are lingering questions about the Chinese government, freedom, censorship and competition.
Given all the data, my overall take on Alibaba is that I have no idea what it will do! I know it’s strange for a stock market expert to admit that, but unlike the phonies out there who always have an opinion on everything in fear of losing credibility, I tell you exactly what I think. I’ve made millions in the market and now have student millionaires too, that’s my credibility! It’s far too early in Alibaba’s life as a company and as a US-listed stock to draw any meaningful conclusions and I didn’t get rich playing guessing games so I will avoid this stock.
It’s okay to be unsure in the stock market, you’ll go much further in the business world by being totally honest rather than pretending to be all knowing.
Things I Liked:
1. The NFL’s sponsors are now coming down hard on the league for their leniency and absolute bungling of important domestic violence issues.
2. I received my new iPhone 6, as I posted on Instagram, I’m hopeful it comes with a feature to help me set the correct time/date on my two $30,000 watches that I just can’t figure out!
3. I like how many Apple fanboys and pundits have ripped on the new Apple Watch, it’s good to see honesty take center stage for what looks to be a truly disappointing new product.
Larry Ellison stepped down as CEO of Oracle, but will remain CTO. It was more of a symbolic gesture to give credit to others’ hard work, good for him!
So much for the whole world loving democracy and independence, I’m saddened to see Scotland vote no instead of yes, but I understand the temptation of status quo.
Get more financial advice at timothysykes.com.