The relationship between the U.S. and China has played a large role in the stock market this year. As the trade war between the two countries intensifies and then appears to cool, many stocks have been been impacted. Sometimes the tension between the two countries veers into unpredictable territory with unexpected ripple effects. That’s the case with the current situation, ignited by a tweet from the general manager of the NBA’s Houston Rockets in support of anti-government protesters in Hong Kong. Among the ripple effects of this action was for Chinese e-commerce giant Alibaba (NYSE:BABA) — whose co-founder happens to own the NBA’s Brooklynn Nets — to yank Houston Rockets merchandise from its online stores. As the situation simmers, Alibaba stock dipped 1.19%.
As many of these situations are, the NBA’s Hong Kong problem is complicated.
To set a backdrop, the NBA has been looking to China as a major source of revenue. With a market worth billions of dollars, the NBA reportedly has 200 employees in the country to coordinate streaming games, pre-season live games, recruitment and merchandise sales. As part of that relationship, former Houston Rockets player (and NBA Hall of Famer) Yao Ming is president of the Chinese Basketball Association. And, Alibaba co-founder Joseph Tsai owns the NBA’s Brooklyn Nets.
The crisis was ignited over the weekend when the Houston Rockets general manager took to Twitter (NASDAQ:TWTR) to say: “Fight for freedom. Stand with Hong Kong” in support of demonstrators in Hong Kong. They have been protesting for months against proposed legislation that would make residents subject to Chinese jurisdiction. The tweet was deleted and an apology quickly posted, but the damage was done. The NBA has issued several formal apologies since (the latest on Tuesday morning), but the tweet has resulted in a big rift between the basketball league and China.
Among the actions taken to date, the Chinese Basketball Association cancelled four NBA matches scheduled to take place in China in October, and announced it is suspending its relationship with the Houston Rockets. Both Alibaba and China’s JD.com (NASDAQ:JD) have delisted Houston Rockets merchandise from their online stores. China’s state broadcaster and Tencent announced they will stop showing Houston Rockets games.
Could This Situation Actually Affect Alibaba Stock?
So how could this battle between the NBA and China have any impact whatsoever on Alibaba stock?
In March, Alibaba and the NBA announced an agreement that would see their relationship greatly expanded. Alibaba’s streaming video service — with 700 million users — would get a dedicated “NBA section,” showing game highlights, classic basketball games and other content. The move also made it easier for Chinese basketball fans to buy NBA-licensed merchandise from their favorite teams.
The Yao Ming connection means that Houston Rockets merchandise has been especially popular. Having Alibaba Group yank Houston Rockets products from its stores will be painful, however.
Don’t Let This Influence Your Decision to Buy BABA Stock
Alibaba reported annual revenue of $39.3 billion in 2018. Losing the sales of Houston Rockets jerseys or NBA merchandise in general isn’t going to have a material impact on its bottom line.
The bigger concern in terms of Alibaba stock is whether the current situation will result in a further deterioration of the relationship between the U.S. and China. As a retailer, Alibaba is sensitive to any trends that might cut consumer spending. The tensions between the two countries and their potential to impact China’s economy definitely falls under that umbrella. In addition, it was only in July that Alibaba Group opened its platform to U.S. sellers. Anything that jeopardizes this initiative is worrisome.
In short, if you’re considering investing in Alibaba stock — which is currently up nearly 23% year-to-date — don’t let the NBA mess change your mind. But do be aware of the overall relationship between the U.S. and China and how that might impact the company’s performance.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.