I don’t know if you’ve been following the news lately, but Facebook and Alibaba are currently being undervalued. Or are they not?
00:00 That is the question I would like to discuss in today’s video.
00:35 Including its own social media platform, Facebook owns Instagram and WhatsApp. They reach 3.3 billion people every month, but its stock trades at just 20 times forward earnings.
Alibaba serves 779 million shoppers in China annually and controls over 40% of the country’s cloud market, but its stock trades at just 21 times forward earnings.
Those valuations are low relative to their projected growth rates. Analysts expect Facebook’s revenue and earnings to rise 25% and 13% this year. They expect Alibaba’s revenue and earnings to jump 51% and 37% in fiscal 2021, which ends next month.
01:58 Facebook and Alibaba both face intense regulatory headwinds. Facebook faces antitrust probes in the U.S. and Europe, is clashing with regulators in Canada and Australia over proposed payments for posted news stories, and the deadly Capitol riot in January sparked serious concerns about the platform’s role in spreading misinformation and hate speech.
Alibaba faces regulatory pressure in both China and the U.S.
China’s antitrust regulators launched an antitrust probe into its e-commerce business last December to target its exclusive deals with merchants and promotional prices for new users.
03:55 If Facebook is forced to spin off Instagram, it would lose its main defense against higher-growth niche players like Snapchat, Pinterest, and TikTok.
If Alibaba ends its exclusive deals with merchants and promotions for new users, it could lose its advantage against its two biggest e-commerce rivals, JD.com and Pinduoduo.
All that uncertainty has caused Facebook and Alibaba to significantly underperform their industry peers over the past 12 months
05:05 So, if you have that $10,000 laying around, is either of these stocks a best buy right now?
Both these companies face regulatory challenges, but if those issues don’t bother you, I believe Alibaba is a more compelling investment than Facebook right now. Alibaba’s core commerce business is still growing, its cloud segment’s profitability is gradually improving, and its ecosystem continues to expand with fresh investments and acquisitions.
It also seems to face less competitive headwinds than Facebook.