After Alibaba’s $400 Billion Stock Selloff, Investors Hope the Worst Is Over
They may have to wait a while for the former market darling to regain its glory
By Yifan Wang
Wall Street Journal
Oct. 29, 2021 5:30 am ET
New product launches could help offset expectations of slowing growth at Alibaba’s core e-commerce business. PHOTO: MARK SCHIEFELBEIN/ASSOCIATED PRESS
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SINGAPORE—Investors are betting the worst is over for Alibaba Group Holding Ltd. BABA -2.86% after a punishing selloff that halved the market value of the Chinese e-commerce giant in less than a year.
They may have to wait a while, however, for the former market darling to regain its glory.
Alibaba, a bellwether for Chinese new-economy stocks, hit a record high a year ago this week, when its market capitalization topped $850 billion. That solidified its position as China’s most valuable listed company.
Days later, the blockbuster initial public offering of its financial-technology and digital payments affiliate Ant Group Co. was shelved. Alibaba’s shares began a long slide that slashed about $400 billion from the company’s market value. As Chinese regulators increased their scrutiny of more internet-technology companies, global investors including mutual funds managed by T. Rowe Price Group Inc. and Fidelity Investments cut their stakes in Alibaba, regulatory filings show.
The company’s shares rebounded partially this month, after a small publishing company chaired by Warren Buffett’s longtime partner Charlie Munger disclosed that it increased its stake in Alibaba. They jumped again after Jack Ma, Alibaba’s billionaire co-founder and the controlling shareholder of Ant, made a trip to Europe, indicating he was free to travel overseas and might no longer be under intense regulatory scrutiny at home.
Mr. Ma’s appearance in Europe “could inject a boost of confidence” for investors, said Oong Chun Sung, an analyst at UOB Kay Hian, a Singapore-based brokerage. The failed listing of Ant, which is a third owned by Alibaba and is restructuring into a financial-holding company, had a “very long-lasting impact on investor sentiment,” he said.
After its New York-listed American depositary receipts gained 15% this month, Alibaba’s market capitalization stands at about $460 billion. Investors were also encouraged by recent new product launches, including an advanced self-developed chip, from the company’s large and growing cloud-computing division. It provides data storage and processing technologies—as well as infrastructure for businesses—and is a significant driver of China’s digital economy.
That could help counter expectations of slowing growth at Alibaba’s core e-commerce business, which has been targeted by various regulatory actions over the past year.
In April, the company was fined a record $2.8 billion by China’s antitrust regulator, which said Alibaba abused its dominant market position in online retailing. The Hangzhou-based company had engaged in a practice known in the industry as “er xuan yi,” or “choose one out of two,” pressuring merchants to sell on its online platforms and not on those of its rivals.
Alibaba pledged to revamp its business practices and has since moved to gradually open up its e-commerce and digital-payments ecosystem to competitors. Growing competition is also eroding its market share as China’s e-commerce industry matures and consumer shopping preferences change.
“Alibaba’s business dynamic has undergone drastic changes,” said Bruce Liu, portfolio manager at Esoterica Capital, a New York-based asset-management company that sold its Alibaba shares last year after Ant’s IPO was scrapped. In light of China’s new era of tightened internet regulations, he predicted that it would be difficult for Alibaba’s valuation to return to peak levels soon.
Valuations for many internet businesses in China have soured since late 2020, as Beijing’s tightening regulatory grip has hurt investor appetite for the country’s stocks. But Alibaba suffered one of the biggest blows, due in part to its high visibility and liquidity in overseas markets.
Alibaba was one of the first targets of China’s tech crackdown that began last November. Later, in July, Beijing took more aggressive regulatory actions across more sectors and international investors rushed to cut their exposure to China.
The company’s market capitalization has also fallen significantly below that of its longtime rival and China’s other internet juggernaut, Tencent Holdings Ltd. , which earlier this year overtook Alibaba’s place as China’s most valuable listed company. The gap between the two has widened in recent months, and is now close to $140 billion.
Alibaba now trades at around 17 times expected earnings for the next 12 months, versus 24 times for Tencent, according to FactSet.
Other regulatory risks hover over China’s internet sector, including new data-security laws and new rules aimed at protecting the welfare and safety of gig economy workers.
Alibaba is also contending with weaker-than-expected growth in consumption across China. The country’s recent housing-market slowdown—as well as power-supply crunches—have hurt business activities and could weigh on consumers’ willingness to spend for the rest of the year, analysts at Citigroup said in a Sept. 29 report. They said the company may have difficulty achieving more than 30% revenue growth—a number Alibaba has guided analysts to—for the fiscal year that ends in March 2022.
Alibaba recently started promoting its coming Singles Day festival, an annual online shopping bonanza that has generated year after year of record sales on its platforms. Investors will be watching closely to see how this year’s event compares with 2020, when Alibaba said it generated the equivalent of $75 billion in sales.
In an October regulatory filing that contained a recent annual report for one of Putnam Investments’ emerging-markets funds, portfolio manager Brian Freiwald said Alibaba had been a laggard in terms of its stock performance. He expects the company’s core e-commerce business to grow in line with the market and said improving profitability at Alibaba’s other divisions should help the group produce more than 20% earnings growth.
“The stock has continued to trade at what we believe to be attractive valuations. We continue to like Alibaba,” he added.
—Serena Ng contributed to this article.
Write to Yifan Wang at yifan.wang@wsj.com
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Appeared in the October 30, 2021, print edition as 'Investors Hope Alibaba’s Selloff Is Over.'
After Alibaba’s $400 Billion Stock Selloff, Investors Hope the Worst Is Over - WSJ |
