Alibaba Group Holding Ltd (BABA) was one highly anticipated IPO, but the stock has been struggling since debuting on the U.S. market in 2014. Shares have sunk over 17% since their first day, including a 5% slide in 2016 alone.
Most recently, an SEC investigation into accounting practices has affected sentiment around Alibaba stock. Jim Chanos, who was one of the first traders to short Enron, actually told Fortune Magazine last month: “The accounting at Alibaba is some of the most questionable I have ever seen for a major multi-billion market cap company that went public (in the USA).”
Meanwhile, Softbank decided to sell around $10 billion of Alibaba stock following news of the investigation.
And that’s not even considering the factors that were weighing on BABA stock before accounting concerns stole the spotlight, like China’s slowing economy and growing e-commerce competition.
So what exactly will it take to get BABA stock moving in the right direction again? Let’s take a look at a few potential catalysts.
Movers for BABA Stock
SEC Resolution: As Barron’s recently noted, it is currently unclear how long the SEC investigation will last. The agency is trying to understand three things, according to Alibaba’s filing: How Alibaba discloses business unit results; accounting for Singles Day; and more information on related-party transactions. The first is likely the most important, as the fact that Alibaba doesn’t include major operations like its Alipay unit has raised eyebrows.
This investigation could thus hang over Alibaba’s head for some time. The twisted silver lining, though, is that investors will likely get used to it and come to expect it, meaning a resolution will be a boon to shares.
China Recovery: No matter how you slice it, though, Alibaba is a play on China, meaning the company needs China’s economy to stabilize. That’s been happening in recent months, but not in the most ideal way (read: via more debt).
Still, it’s better than nothing, and could potentially be enough to patch up the damage to Alibaba stock, especially considering the fact that more Chinese have been climbing into the upper middle class despite the turmoil, according to CNBC.
That’s because consumer spending is what really matters to BABA stock. If that takes off on the back of even a questionable recovery, the stock could see some relief.
Virtual Reality: Looking even further down the line, Alibaba also has another megatrend in its corner … virtual reality.
BABA recently announced an in-house VR research lab. As TechCrunch explained, the lab will “work with its shopping businesses with a view to integrating VR into the shopping experience while exploring other applications, such as video with Youku Tudou and entertainment via Alibaba Pictures.”
This is promising because VR in itself is hot, and is even more appealing when it can be so directly tied to Alibaba’s core business.
While Alibaba is facing headwinds at the moment, one of these catalysts could serve as a reminder of the assets and upside the Chinese e-commerce giant has in its corner.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
