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Forget Alibaba earnings—listen to Jack Ma

Alibaba's earnings met our expectations but what matters more is what Alibaba founder Jack Ma said during a speech in China last month.

Ma said that he believed Alibaba had grown too fast and it was time to rein in unbridled hiring and spending.

Alibaba founder and chairman Jack Ma makes a speech during the official opening of the CeBIT trade fair in Hanover March 15, 2015.
Fabian Bimmer | Reuters
Alibaba founder and chairman Jack Ma makes a speech during the official opening of the CeBIT trade fair in Hanover March 15, 2015.

Alibaba faces operational and executional risk as they move forward with their ambitious global plans. One should not ignore the comments of Mr. Ma regarding tempering near-term expectations — the near-term risks are real.

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The valuation associated with this company is not stratospheric and we do not expect a price collapse as we've seen in other Internet companies such as Zynga. One only needs to look at Amazon to see how forgiving investors can be regarding valuation. Alibaba is a real company with solid earnings and has a business model like Facebook that has legs. Still, this does not mean the company will necessarily avoid price-earnings compression even with high growth prospects. The recent earnings release by LinkedIn (and the resulting stock drop) shows how expectations for strong consistent growth can lead to disappointments from investors if optimistic projections are not delivered.

If you buy Alibaba stock, you are looking very long-term and can ignore the short-term disappointments that might last as long as two or three years. Furthermore, if you are considering purchasing this stock, it might make good sense to split your purchases over numerous time periods to average into the position, particularly given the uncertainties around the company's near-term growth trajectory. View a decline in the stock price as an opportunity to drip into the position and do not be overanxious.

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Alibaba stock will likely give you numerous opportunities to build a long-term position for the patient investor willing to overlook the near-term bumps.

Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California.

Disclosure: Michael Yoshikami doesn't own shares of Alibaba or have any business relationships with the company. But DWM may buy Alibaba for clients.

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