For most people, Alibaba Group Holding Ltd (NYSE:BABA) is considered a tremendous success story. Over the past ten years, revenue for BABA has skyrocketed nearly 5,200%. Despite this burst, quarterly sales growth this year still averages a lofty 43%.
To put that into perspective, Amazon.com, Inc. (NASDAQ:AMZN) sales increased 900% over the trailing decade, while quarterly revenue growth averages 29% this year. Recent news does nothing to detract from the positive assessment of Alibaba stock.
For this year’s “Singles Day” — an online shopping extravaganza — BABA pulled off shockingly unreal numbers. Within the first five minutes, $1 billion worth of sales hit the registers.
By the close of the first hour, $5.2 billion made its way into the books. In that short amount of time, Alibaba had already exceeded the total haul of Singles Day of 2013.
Alibaba Stock Is an Embarrassment of Riches
Aside from the astounding figures, the enormity of this sales event cannot be overemphasized for BABA stock. Prior to the company’s involvement in 2009, Singles Day was an informal holiday designed as a distraction for the unhitched.
Now, it is a guaranteed bonanza for Alibaba stock. The best part, of course, is that there is seemingly no ceiling to the shopping craze. BABA chief Jack Ma anticipates that Singles Day will be a household name in America over the next 15 years.
Who’s to doubt him? Analysts expect Alibaba stock to be boosted by a record haul of $20 billion once the event is over. If the forecast is correct, that’s a 39% increase from last year’s total of $14.3 billion. At this level, the revenue already exceeds that of our Black Friday and Cyber Monday combined!
So stunning is the dominance of Alibaba that its regional competitors — JD.com Inc (ADR) (NASDAQ:JD), Tencent Holdings Ltd (OTCMKTS:TCEHY), Baidu Inc (ADR) (NASDAQ:BIDU) — also ramp up in anticipation of Singles Day.
Naturally, this should all be extremely bullish for BABA stock. Remarkably, it’s not. Yes, year-to-date, Alibaba stock is up 12%. That puts a lot of companies within the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) portfolio to shame. At the same time, BABA is down nearly 14% since peaking this year on Sept. 22.
Troubling Signs for BABA Stock
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BABA slipped more than 3% the day after the election, another 2% on Nov. 10 and is currently down 3.4% today. This contrasts sharply with the U.S. markets, where futures were rocked, but would later recover once the Trump presidency was digested.
Certainly, the fallout for BABA stock isn’t surprising. Other Chinese companies have witnessed similar volatility in the wake of the U.S. elections. But primarily, Donald Trump has been a consistently harsh critic of our economic relations with China.
Frankly, nobody is used to this kind of direct language and it casts awkwardness, to say the least. Even Jack Ma appeared somewhat tense while delivering an otherwise diplomatic interview regarding the political paradigm shift.
On another front, there’s Katy Perry. Normally, a pop superstar wouldn’t figure into a company like Alibaba. However, she abruptly canceled her Singles Day performance in China, citing a “family emergency.” That disappointed millions of Chinese fans who have come to nickname her “Fruit Sister” due to her outlandish wardrobe. It also appears disingenuous. Katy Perry had no problem attacking Donald Trump through social media. Now, she’s turning her back on BABA.
Is Alibaba Getting Too Aggressive?
As strange as it sounds, Katy Perry represents something bigger for Alibaba stock. For one thing, the company invested tons of money advertising her presence. All that effort ended up in her being a no-show. But more importantly, BABA is striving to become an American brand. That means aggressively courting instantly recognizable names like Katy Perry.
Appearance wise, the efforts are a success. David Beckham stepped up in Perry’s absence. Basketball icon Kobe Bryant was there as well. But all of this costs “big league” money, which naturally hurts margins for Alibaba stock. While the company is significantly more profitable than its competitors, its margins are much less than they used to be. Against trailing earnings, that’s made Alibaba stock no longer fairly priced.
The other risk factor to consider is competition. The reason why people loved the initial public offering for BABA stock is the Chinese demographic, as in there’s a ton of people in China. Initially, that works great for the trendsetter. However, as word gets around, more people means more competitors. That’s hurting the packaging makers in China, and Alibaba itself is liable to fall under the same pressure.
It’s definitely not the end for Alibaba stock. Yet, I also think it’s fair to strike a cautious tone with the company. After all, we’re talking about one of the most popular e-commerce retailers that is down 2.7% since its IPO! As we head toward the uncertainties of a Trump presidency, BABA stock faces some tough questions.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
