What is happening to the Alibaba (BABA) stock price?

Alibaba (NYSE: BABA) stock price has underperformed the market in the past few years. After peaking at $315 in 2020, the stock has plunged by over 76%, making it one of the worst-performing big-tech stocks. Its market cap has dropped to $184 billion. 

In this period, its American peers have continued to fire on all cylinders. Microsoft and Apple are now worth over $5.8 trillion and there are now six companies valued at over $1 trillion globally. 

Alibaba has moved from one of the top ten biggest companies in the world to the 62nd. It has also been overtaken by companies like PDD Holdings (Pinduoduo), Kweichow Moutai, and Tencent in China’s rankings.

At its peak, Alibaba was the biggest Chinese company in terms of market capitalization. At that time, its key products and services were dominating key areas of the country’s economy. Ant Financial became a giant fintech company valued at over $300 billion.

Alibaba Cloud, on the other hand, became – and is still is – one of the biggest cloud computing companies globally. While companies like Amazon and Microsoft dominate in most countries, Alibaba has become a key cloud provider to Chinese companies.

Alibaba is also a market leader in local and international e-commerce. It also owns some of the top brands like Lazada, Taobao, Alibaba Pictures, and Freshippo. 

Alibaba is battling numerous challenges that have affected its performance. First, the company is facing a challenging regulatory climate at home. While China embraced technology earlier on, the leadership became wary of the power that these companies were accumulating. As a result, Beijing launched a major crackdown that has diminished Alibaba.

Second, the company is now operating in a highly competitive environment. Companies like JD.com, Shein,  and Pinduoduo (PDD Holdings) have taken market share in key segments.

Third, its AliPay business has been forced to operate in a highly restrictive regime, which has hit its profitability. 

Fourth, and most importantly, the US and China relations have not helped Alibaba either as many large investors have stayed away. For one, as a major cloud provider, the company has been prevented from accessing some Western technologies. 

Further, the woes in the Chinese and global economy have not helped Alibaba. The most recent data shows that China’s recovery was not as strong as expected. Also, many foreign buyers are struggling because of the stronger US dollar.

Most recently, Alibaba stock price has plunged after the company decided to maintain a conglomerate structure by pausing its spin-off of its cloud and retail businesses. The company noted that the current environment would not be receptive of the separate businesses.

The most recent results showed that Alibaba’s revenue and profitability growth was easing. Its revenue rose by 9% to RMB224.8 billion while its adjusted EBITDA rose to RMB 42.8 billion. It also repurchased stock worth $3 billion and is in the process of implementing a $40 billion repurchase plan. 

BABA stock chart

Barring any major external issues, Alibaba stock price is one of the cheapest bargains in the market today. Because of its woes, the company is trading at a forward PE multiple of just 8.15, lower than the sector median of 14. It is also trading at a bargain compared to the S&P 500 index, which has a multiple of over 20.

Further, Alibaba has a cheaper forward EV to EBITDA of 5.24, which is lower than the sector median of 10. Most importantly, despite its woes, Alibaba is returning billions of dollars to shareholders through buybacks and dividends. It has a major market share in key industries like e-commerce and cloud computing.

Therefore, there is a likelihood that the company will bounce back in the coming months. The key risks to watch are the ongoing tensions between the US and China, the upcoming US elections, the US dollar, and Chinese regulations.

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