Is it time to sell or buy a bear market? Assessing Alibaba’s Price Action Amid Headwinds

China’s leading technology conglomerate, dominating a market worth approximately $174.86 billion Alibaba Group Holding Limited (BABA) Over the past three years, the company has experienced major headwinds, with its stock price plummeting by more than 70%. The stock is currently trading below $77, down from its all-time high. 2020 high above $300.

But what was the cause of this downfall?

Over the past few years, BABA has navigated a series of obstacles that have significantly hindered its growth trajectory.

Amid China’s massive efforts to rein in technology companies in 2021, BABA has been slapped with significant fines, including: Approximately 2.8 billion dollarsThis represents approximately 4% of the company’s 2019 sales. The punishment was imposed by Chinese regulators, who accused BABA of abusing its market power.

Apart from the heightened scrutiny from Chinese regulators, 2023 has been a difficult year for BABA, with heightened uncertainty about the future of the tech giant, especially as the era of artificial intelligence (AI) unfolds.

Last year, the company’s strategic plan to list its cloud division as a separate entity was forced to undergo a review. Increasing chip conflict Between the US and China.

As the U.S. government tightens restrictions on the export of advanced chips essential to power AI models to China, BABA believes this could have a significant negative impact on Cloud Intelligence Group’s ability to operate and further negatively impact the company’s profitability. expressed concerns.

The Company also recognized that these restrictions could have a broader impact and potentially hinder its ability to advance its technological capabilities across its various business segments. Those concerns didn’t sit well with investors and cost the company nearly $20 billion in market capitalization last year.

BABA co-founder Joe Tsai also said the following in a recent conversation with Nicolai Tangen, CEO of Norges Bank Investment Management in Norway: China is at least two years behind American companies Like Open AI, which has emerged as a leader in the AI ​​field.

Tsai suggested that many Chinese technology companies are facing a chip shortage, which he described as a serious challenge. However, he noted that the issue is being addressed extensively within the industry.

Tsai further emphasized the challenges of doing business in the United States, emphasizing the need for caution as a Chinese company. He noted BABA’s consumer-facing activities in the U.S. are limited, citing concerns about data privacy and cybersecurity.

Additionally, in retaliation for U.S. sanctions, the Chinese government ordered its largest telecommunications company to take the following actions: Replacing foreign processors with domestic alternatives On the network until 2027

The move is expected to hurt several prominent U.S. chip giants that supplied core processors for Chinese network equipment. Technology companies like BABA are poised to face serious challenges as China seeks to reduce its dependence on U.S. chips.

conclusion

BABA’s third quarter fiscal 2024 results painted a mixed picture. While the topline experienced a slight year-over-year growth of 5%, reaching $36.67 billion, the company’s non-GAAP net income and non-GAAP EPS decreased 4% and 2% year-over-year, respectively, to $6.75 billion and $0.33. . , each.

In addition, Alibaba’s Taobao, Tmall Group, and Cloud Intelligence Group posted sales of $18.18 billion and $3.95 billion, respectively, up 3% and 2%, respectively, compared to the same period last year. It stopped. The company’s newly appointed CEO, Eddie Wu, emphasized BABA’s focus on driving growth in e-commerce and cloud services.

Wu emphasized that the top priority next year will be reigniting the growth of its core businesses, including Taobao and Tmall Group, through increased investments to improve user experience and strengthen market leadership.

Wall Street analysts are optimistic about the company’s performance in fiscal 2023, projecting 5.5% year-over-year sales growth and 9.4% year-over-year earnings per share growth.

However, despite the optimistic estimates, it is important to recognize that BABA and its peers face a complex environment of regulatory, geopolitical and technological challenges, signaling a period of significant uncertainty and potential disruption for the industry in the coming years. .

To make matters worse, Weak consumer demand in China There is no support for that claim either. According to data released by the National Bureau of Statistics (NBS), China’s consumer inflation in March cooled more than expected and producer price deflation continued. This has led policymakers to consider additional stimulus measures due to weak demand.

Given BABA’s limited global consumer-facing presence and Taobao and Tmall groups’ heavy reliance on Chinese consumer spending, the difficult economic environment could be a significant drag on the company in the near term.

Overall, despite BABA’s efforts and focus on fostering growth in e-commerce and cloud services highlighted by CEO Wu, the company’s growth has been hampered by ongoing macroeconomic headwinds such as weak consumer demand in China, geopolitical tensions, and technological constraints. You can receive it.

To that end, it seems prudent for investors to monitor the stock closely and wait for further developments.