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Is Alibaba's share price a bargain or a risk?

Alibaba [BABA] share price surged more than 15% over Monday and Tuesday last week. While the stock fell slightly on Wednesday, at Friday’s close it was still up over 11% on the week. A relief for investors after US-listed China tech stocks got pummelled following Didi’s announcement that it was relisting in Hong Kong - a move triggered after months of intense pressure from Chinese regulators.

Still, Alibaba’s share price has slumped this year in conjunction with an increasing bearish view of China-tech stocks. State intervention has been the main drag, but Alibaba has also suffered from slowing growth. Will 2022 be a different story for Alibaba’s share price?

 

 

 

What’s happening with Alibaba’s share price?

2021 hasn’t been a banner year for the Chinese e-commerce giant. Alibaba’s share price has tumbled over 22% in the past month (through 10 December), 50% this year, and is trading at its lowest levels for several years.

Earlier this year, Alibaba was fined $2.8bn after being found to have abused its dominant position in an antitrust probe. Also weighing on the company has been a fall in profits owing to increased spending and the performance of Alibaba’s own investments.

In an effort to rejuvenate its business - and hopefully the share price - Alibaba  has announced it will be merging its Chinese e-commerce units in the new year, along with creating a dedicated international commerce team. Other changes include Chief Financial Officer Maggie Wu being replaced in the post by Toby Xu in April next year. Xu currently serves as deputy chief financial officer.

$2.8billion

Total Alibaba was fined in an antitrust suit earlier this year

 

In a letter to employees seen by the Wall Street Journal, Alibaba said that the shakeup will allow it to be ‘more agile’.

A slowdown in growth has come about as rival Pinduoduo steals market share to the extent that in November Alibaba slashed forecasts for the fourth quarter. Alibaba now expects earnings for the quarter to grow 20% to 23% year-on-year, down from a previous forecast of 30%.

In short, shareholders will be hoping for a better performance in 2022. Although that will depend on a softening of Beijing’s stance on China’s tech sector.

 

Is Alibaba worth the risk?

Alibaba’s share price performance in 2021 could mean the stock is a bargain. The firm is fundamentally strong - just look at its online shopping event ‘Singles Day’, which pulled in a record $84.5bn earlier this year. And despite growth forecasts being slashed for the fourth quarter, these are still in the double digits.

Alibaba has also sought to diversify its revenue streams through international markets, grocery delivery and cloud computing. According to China Internet Watch, Alibaba is the biggest cloud provider in the country with a market share of 33.8%, well ahead of second place Huawei Cloud’s 19.8% share.

$84.5billion

Alibaba's 'Singles Day' sales

 

Yet for investors considering Alibaba, there clearly are risks arising from both state intervention and increasingly fierce domestic competition.

Beijing easing its stance over tech companies in 2022 is by no means a given. Bloomberg reported at the start of December that China is planning to ban companies from listing on foreign exchanges.  This marks the continuation of a year-long programme to curb its tech companies and their expansion through foreign capital.

A softening of regulatory pressure could give the Alibaba some room to breathe, but whether that’s going to happen is another matter

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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