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Why has Alibaba stock (NYSE: BABA) been heading steadily down for a year? Has this created a buying opportunity, or should investors flee from the sight of Alibaba’s wounds?
The most likely answers are: Chinese politics, and yes it has created a bargain-basement opportunity.
It has since expanded into a number of other lucrative fields, including cloud computing, AI technology, and fintech.
In some respects, it is a “national champion,” representing the People’s Republic of China in a world of digital giants in which many of the greatest giants are associated with the opposite coast of the Pacific Ocean.
Alibaba raised $25 billion in its IPO (2014) on the New York Stock Exchange.
A Bad 10 Months
It draws interest, then, when a company of Alibaba’s prominence and promise has a period of ten months (and counting) in which its stock price heads consistently downward. The price has fallen as a slow slide rather than a crash, but the direction has been consistent.
Alibaba’s stock price peaked on October 23, 2020 at $309.92. As 2021 began it was in the $230s.
On April 9, with the stock still in the $220s, the State Administration for Market Regulation fined it $2.75 billion for anti-competitive practices — 12% of its 2020 net profit — and the PRC ordered Alibaba to file self-examination and compliance reports with the SAMR over the next three years.
That was part of a broader crackdown. The government seemed to have decided to show Big Tech that, in China, the government and the Communist Party are still the bosses.
That fine also inspired a feeling in many quarters that Alibaba’s months of declining stock price were at or very near an end. After all, as a rule, after a fine has already been levied or punishment exacted, it ceases to serve as an overhang on the stock price.
By way of comparison, in February 2008 the European Union fined the U.S. digital giant Microsoft $1.3 billion on anti-competitive grounds. That year turned into a very good one for holders of Microsoft stock. Whatever effect that might have had was small, and swamped by the global financial crisis then getting underway.
But MS came through the crisis in strong condition, and has had stunning growth since, all after having gone through an antitrust wrong on two continents.
When will it be possible to say that Alibaba, too, has put its political troubles behind it?
Its price fell below $200 in early August and, near the end of the month, fell below $160.
So What’s Going On?
It is likely that the reasons for the long decline are political, not economic. Alibaba is a very sound enterprise. As noted above, its core business is eCommerce. And it drew 45 million new customers into its platform and ecosystem in the second quarter of this year alone, 24 million of them outside of China.
Subsequent to the April fine, the market seems to have been waiting in the fear that there is another shoe yet to drop, further punishment for what the government may still see as Big Tech’s uncorrected arrogance. This attitude was compounded when the Bank for International Settlements declared as August began that financial regulators have to get tougher on “Big Tech.”
The BIS statement was made in very general terms, but it increased the skittishness about Alibaba and eCommerce.
Reading a stock price chart can be a tricky business. But at some point, and likely in the near future, the market will decide that there is not another shoe, and they may be prepared to take advantage of the buying opportunity here.