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SEEKING ALPHA‘s JR Research writes:

Investment Thesis

We last covered Alibaba (BABA) in November, as we encouraged readers to consider staying out until we have clarity over its regulatory stance. Two months on, the stock is still about where it was (+/- 3%), and there is still no clarity over Beijing’s guidance.

Nevertheless, Alibaba held an investor’s day in December, as they sought to assuage investors to focus on its long-term growth story as management discussed new growth areas.

BABA stock is undoubtedly cheap given that it is trading at just 12.7x NTM EBITDA (3Y mean: 19x). But we know stocks are cheap for a reason. In the case of Alibaba, we believe that until Beijing is finally done with BABA, its stock will likely continue to underperform the market.

Beijing, When Will You Be Done?

Your guess is as good as ours. Since our last article, the Chinese government has continued to surprise us. So, for now, we think we can safely say Beijing is not done yet.

On 5 January, Nikkei/Caixin reported that the rules concerning the use of algorithms in making recommendations would come into effect on 1 March. Such restrictions prevent companies from using these algorithms for price discrimination. While the draft rules have already been in place since August, it continues to demonstrate Beijing’s concerted efforts to continue reining in its Internet companies.

Then shortly after, Caixin reported that China’s “new technical standards for unifying digital payment barcodes have laid the groundwork for tearing down the walls between different payment platforms.” Notably, it also emphasized that it’s still a big question mark hanging over how Beijing intends to enforce interoperability between the payment platforms. As a result, investors have no idea to what extent Beijing intends to tear down the walled gardens between its major payments platform. Caixin emphasized (edited):

The new specifications for integrating payment barcodes, produced by the People’s Bank of China, lay out a set of unified technical requirements for payment service providers, including quick response codes. If strictly implemented, the standards are expected to have a significant impact on the booming multitrillion-dollar mobile payment market, shaking the duopoly of Alipay and WeChat Pay (OTCPK:TCEHY). (Caixin)

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