Why Barron’s Call for Alibaba’s 50% Downside Seems Misguided

If Alibaba Group Holding Ltd (NYSE:BABA) numbers aren’t correct, JD.Com Inc (ADR) (NASDAQ:JD) numbers aren’t correct either. According to its second quarter results, JD.Com Inc (ADR) (NASDAQ:JD)’s GMV per active user run rate was $627 per year and growing rapidly. Although JD.com’s GMV run rate isn’t far off from Alibaba’s GMV run rate, the column doesn’t question JD.com’s numbers.

Alibaba’s user numbers are completely plausible. E-commerce is a winner-take-all field, where the leader gets the lion’s share of the market. Given Alibaba’s leading position, it makes perfect sense that Alibaba’s total active users would be similar to the total size of China’s online shopping population. Amazon.com, Inc. (NASDAQ:AMZN), for example, has over 270 million active accounts, of which two thirds are likely in the U.S. According to Statistica, 75.6% of the U.S.’s 279 million Internet users purchased an item online in 2015. That translates into 209 million total US e-commerce buyers versus Amazon’s 178 million US users.

Going with the tide is not always the right strategy. Barron’s was bearish on Facebook Inc (NASDAQ:FB) in 2012, calling for $15 per share when Facebook Inc (NASDAQ:FB) fell from $38 to $18. Facebook Inc (NASDAQ:FB) never went to $15 per share. It trades at $92 per share instead.

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