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Is the crashing Alibaba share price a buying opportunity?

The Alibaba share price is collapsing, despite the tremendous growth in revenues. Saima Naveed explains what's going on with this business.

by | Last updated 27 Nov, 2022 | Consumer Discretionary

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The Alibaba (NYSE:BABA) share price has had quite a rough couple of months. In fact, year-to-date, the stock has fallen by 30%. Given the level of ecommerce spending is rising with each passing day, this fall in price is quite surprising. No doubt Amazon is a current leader of the e-commerce industry. But Alibaba still stands as one of the largest e-commerce platforms that sell things from clothes, electronics, food, luxury products and even Boeing 747 cargo planes

So why is Alibaba’s share price unstable? And should I be adding this business to my portfolio? Let’s take a look.

What happened to the Alibaba share price?

Alibaba is currently trading at around $159 per share and has more than a $400bn market capitalisation. Due to the country’s fast recovery from the pandemic, Alibaba pushed its profits upwards by the end of 2020. As a result, sales rocketed, and the Alibaba share price spiked during the fourth quarter of last year.

Since then, the stock has been on a downward trajectory. There are undoubtedly multiple contributing factors. However, the instability seems to have started after regulators cancelled its financial division’s IPO. This was swiftly followed by a $2.8bn fine for anti-competitive practices in April a few months later. Therefore despite the improved revenue, Alibaba share price is unable to match the growth trend.

Improved financial position

Despite what its share price would indicate, Alibaba as a business has been performing rather well. At least, I think so. It reported a strong revenue surge of 34% year-over-year in its recent second-quarter report. The company is diligently focused on growth and is reinvesting excess profits and additional capital in the business. This money is used to support the company’s merchants and penetrate new markets to fuel future expansion. 

As a result, total active consumers reached a staggering 1.18 billion. That’s an increase of 45 million since the last quarter. Over the long term, the management team has outlined a strategy to increase its userbase, reaching 2.0 billion by 2036.

If things go as planned, I believe Alibaba share price could quickly reverse its current downward trajectory.

Wrapping it up

Alibaba earned the benefit from China’s speedy recovery from the pandemic. With the country’s economic activity back on track and increased online shopping, Alibaba’s sales showed tremendous growth. But what makes investors like me concerned is the current bearish trend of the company’s stock. After all, Alibaba is not the only business having to face off a crackdown from regulators. For now, I’m keeping this business on my watchlist until more light can be shed on the regulatory situation in China.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

Current Holdings

PSX: CENERGY, PSX: FFL, PSX: PCAL, PSX: PKGS, PSX: SHEZ, PSX: SIEM

Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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