Alibaba Still Isn't Shy About Opening Up its Checkbook
Trade tensions and slowing Chinese GDP growth haven't dampened Alibaba's (BABA) enthusiasm for making strategic investments.
The Chinese e-commerce giant recently took an 8% stake in Bilibili (BILI) , a Chinese video-sharing platform focused on animated content and games. Based on Bilibili's current market cap, the stake is worth over $450 million.
In addition, Alibaba is reportedly in talks to take a stake in German retailer Metro's Chinese operations. And Alipay parent Ant Financial, which Alibaba has a 33% stake in and still plans to go public at some point, just struck a deal to buy British money-transfer firm WorldFirst, reportedly for about $700 million.
Bilibili already had a partnership with Alibaba's giant Taobao marketplace that aimed (among other things) to help content creators using Bilibili sell merchandise and distribute content via Taobao. There might also be room for Bilibili to work with Alibaba's Youku Tudou video platform.
A stake in Metro's Chinese operations would add to Alibaba's considerable efforts -- both via fully-owned subsidiaries such as its Freshippo (formerly Hema) supermarkets and Intime department stores, as well as retailers it has a stake in -- to create retail experiences that blur the lines between offline and online retail. These run the gamut from using retail stores to handle delivery and pickup for online orders, to enabling offline payments via Alipay and face-recognition software, to using data about online and offline purchasing activity to promote items via mobile apps.
Provided British regulators approve the WorldFirst deal -- Ant Financial was recently thwarted by U.S. regulators in its attempt to buy WorldFirst rival Moneygram MGI -- the acquisition should help Alibaba and Ant facilitate cross-border transactions. As it is, Alibaba has been busy overhauling the tech infrastructure for its Alibaba.com international wholesale marketplace.
It's worth keeping in mind here that Alibaba's video and offline retail operations -- and for that matter, its cloud infrastructure business -- are still losing money, and thus wouldn't be factored into the company's valuation if Alibaba was valued strictly based on its P/E. The same goes for its stake in Ant, which is worth $50 billion if one relies on the $150 billion valuation Ant got in its latest funding round, and various other businesses.
Though Alibaba's shares have seen a healthy bounce from their December lows -- a better-than-feared earnings report has helped -- the market still seems to be undervaluing the parts of its empire that aren't contributing to its bottom line for now, and which it still remains eager to grow.
Cisco's Limited Cloud Exposure Has Become a Near-Term PositiveFeb 14, 2019 | 1:20 PM EST
During the last few years, Cisco Systems' (CSCO) relatively limited exposure (as a percentage of revenue) to cloud giants who have been rapidly growing their capital spending has been a headwind to growth. And if the company's ongoing efforts to grow its hardware sales to cloud giants don't bear fruit, this issue will be a headwind in future years as well.
However, for now, as cloud giants slow their hardware purchases after having spent aggressively during much of 2018, limited cloud exposure is actually making things easier for Cisco. Whereas the likes of Intel (INTC) , Nvidia (NVDA) , Western Digital (WDC) and (though company-specific factors are also at play here) Juniper Networks (JNPR) have issued soft outlooks that were partly blamed on cloud spending trends, Cisco (in addition to slightly beating January quarter estimates) just offered a solid April quarter outlook and reported its adjusted product orders rose 8% annually.
Some other factors also helped Cisco's cause. Though the company still faces stiff competition in the campus (office) Ethernet switch market, it's seeing a healthy upgrade cycle for its Catalyst 9000 switch line. With the help of Cisco's DNA software platform, which lets firms more easily implement big-picture network management and security policies, the Catalyst 9000 line stands to grow the amount of long-term revenue Cisco gets from campus switch clients who stay loyal to it. And in the coming quarters, 5G network rollouts should provide a lift to Cisco's telco sales, which have been pressured for some time.
In addition, Cisco's attempts to grow its exposure to enterprise software and security spending -- two fields that are steadily growing as a percentage of total enterprise IT spend -- are gradually paying off. Thanks to both organic investments and M&A, the company's "Applications" segment has reached a roughly $6 billion annual revenue run rate, while its "Security" segment has surpassed a $2.5 billion run rate. Notably, 65% of Cisco's software revenue now comes from subscriptions (that's up from 55% a year ago) rather than traditional licenses.
Throw in the fact that Cisco still only trades for about 14 times its fiscal 2020 (ends in July 2020) EPS consensus, and that the company insists macro and trade issues aren't having a major impact on its business, and its stock is likely to be treated as a safe haven within tech in the near-term. That could allow its recent rally to continue, even if huge returns are unlikely.
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