I was wrong about Alibaba Group Holding (NASDAQ:BABA). I didn’t believe Chinese President Xi Jinping would kill the goose laying his economy’s golden eggs. I bought the dip on BABA stock for my retirement account, however, those shares are down over 45%. Maybe I’m not the one you should ask about Alibaba’s prospects.
Many analysts have soured on Alibaba. Some are now telling American shareholders to sell before Alibaba is de-listed from American exchanges.
As New York trading opened today, Alibaba was trading at a little over $124 per share while the market capitalization is $339 billion. The shares have lost over half their value in the last year. All technical indicators point to further falls.
Why then do 22 of 24 analysts at Tipranks still say you should buy it, with a price target of $210?
Still A Great Business
Moreover, Alibaba is still a great business despite operating under the pall of Xi’s new “common prosperity” mantra. A singles day sales set a record on Nov. 11 — Alibaba continuing to build a strong moat around its merchant services.
Neither clients nor customers are abandoning it because Alibaba still represents 40% of China’s e-commerce market. By way of comparison, Amazon.Com (NASDAQ:AMZN) had 41% of the U.S. e-commerce market.
Alibaba also remains China’s largest Cloud Emperor. That is, it still owns the largest share of China’s cloud servers and gets nearly 40% of the country’s cloud revenue. Like Amazon, and America’s other Cloud Czars, Alibaba is also starting to design its own server chips, the Yitian line. For the three months ending in September, Alibaba brought in over $3.1 billion from cloud computing.
The Yuan, meanwhile, continues to appreciate against the U.S. dollar. It’s now at 6.38 to the greenback. It was over 7 as recently as June 2020. Your Chinese investments are appreciating even if they’re standing still.
Free Falling and The Break-Up
Over the last year, however, every effort to move Alibaba stock higher has failed. The latest low, reached Dec. 3, at $118. Shares were headed down in pre-market action Dec. 9.
However, I’m not the only shareholder suffering when it comes to BABA stock. Softbank (OTCMKTS:SFTBY) is down by half just since February, as the value of its Chinese assets have plunged. Analysts now see the Xi government redistributing the golden eggs Alibaba laid, recommending stocks like Pinduoduo (NASDAQ:PDD) instead.
Moreover, Alibaba management is aware of its problems. While analysts recently focused on the appointment of Toby Xu as chief financial officer, I was more interested in the break-up of its e-commerce operations.
However, it was announced that Trudy Dai will now head domestic e-commerce, while Jiang Fan will be running the company’s international commerce unit. Fan, 36, once ran all of Alibaba e-commerce. He was removed as a member of Alibaba’s partners committee last year over an alleged affair. But, CEO Daniel Zhang is not letting the scandal shelve the future of BABA stock because of his top man.
The Bottom Line
I was too early getting back into Alibaba, so I hesitate recommending you get in now — however, I could be wrong again.
Alibaba still carries political risk but you might have to sell in a few years or find a broker who can trade inside China. The chatter around the stock remains very negative, despite a price to earnings ratio of just 11.21.
But I wonder how much harsher Xi can be to the company while China’s economy is teetering. Its situation is becoming increasingly opaque and that a recession could threaten Xi’s grip on China’s Communist Party, even though he seems in more control of it than ever.
Therefore, China needs Alibaba to succeed while The stock is cheap and I’m hanging on. Feel free to disagree.
On the date of publication, Dana Blankenhorn held long positions in BABA and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.