Alibaba (NYSE:BABA) — often referred to as the “Amazon (NASDAQ:AMZN) of China” — has been feeling the impact of the coronavirus from China. Since closing at an all-time high of $230.48 on Jan. 13, Alibaba stock has been up and down, but the general direction has been a retreat from that record price.
At its current price around $211, though, BABA stock has now slipped about 8.5%. Does the pullback represent a buying opportunity? Or, is the Chinese tech giant facing long-term challenges that might see its shares drop further?
Alibaba Stock Was on a Tear
Alibaba gets that “Amazon of China” nickname for good reason. Like Amazon, the company is focused on multiple lines of business. In BABA’s case that largely mirrors Amazon: e-commerce, cloud computing, digital media and entertainment.
In its latest quarterly earnings report, BABA beat estimates on earnings and revenue. Its core commerce business saw 38% year-over-year revenue growth, while cloud computing revenue was up 62%.
Those results aren’t an anomaly. Rapid, consistent growth has pushed the value of Alibaba stock up by 102% over the past three years. In the 12 months culminating with its January 13 high, BABA posted 15% growth.
And Then, Coronavirus Hit
The coronavirus has wreaked havoc with markets in general. Feb. 24 saw stocks take a big hit on fears the virus was spreading beyond China. The Dow Jones Industrial Average dropped 3.5%, the Nasdaq Composite fell 3.7% and the S&P 500 was off by 3.3%. Meanwhile, Alibaba stock fell as well, losing 3% on the day.
As a company based in China that relies heavily on Chinese businesses and consumers, Alibaba is exposed to further damage should the coronavirus outbreak in that country worsen. When workers can’t get to their jobs, output and delivery slumps. When consumers are in lockdown mode, they cut back on buying extras.
There may be an initial surge in online shopping as consumers bunker down. However, stock shortages and delivery restrictions inevitably come into play.
In its earnings call, Alibaba issued a warning about the impact to its business from the coronavirus. CEO Daniel Zhang told analysts:
“It will present near-term challenges to Alibaba’s businesses across the board.”
Bottom Line on Alibaba Stock
There is no doubt that the coronavirus has hit Alibaba. Depending on whether the outbreak ends up being contained or grows worse, BABA has the potential to be volatile through 2020. The company’s stock has taken a 9% hit so far since its January highs, with around 500 million Chinese citizens on lockdown. Should the coronavirus spread resulting in further measures, that is going to bring e-commerce to a halt in the country — and Alibaba will obviously feel that impact.
In the long term, though, the outlook for Alibaba stock is almost universally positive. Among 57 investment analysts, 51 rate the stock as a buy and four have it as outperform.
Additionally, a 2018 report by Citron Research noted that Amazon generated 40-50% of U.S. online sales at that time, while Alibaba claimed 80% of Chinese online sales. In addition, Alibaba owns 33% of ANT Financial, the world leader in mobile payments. And, like Amazon, BABA is a leader in AI and cloud computing.
In other words, Alibaba has all the pieces in place for continued large-scale growth in the world’s largest economy once the coronavirus has run its course. With a market capitalization just over half of Amazon’s, that leaves plenty of upside potential for BABA.
As InvestorPlace’s Louis Navellier points out, the coronavirus is a “black swan” event. No-one saw it coming, and it’s hitting Alibaba hard now.
However, given the long-term growth potential of Alibaba, the slump BABA stock has been in as a result of the coronavirus makes it a buying opportunity.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
