Shares of e-commerce stalwart Alibaba (NYSE:BABA) — essentially China’s flagship enterprise — fell conspicuously on Thursday. Earlier this morning, CNBC revealed that Alibaba-owned Lazada — which is billed as a virtual shopping mall for the Southeast Asian market — is set to issue a headcount reduction. These layoffs reflect intense competition in the underlying region, putting pressure on BABA stock.
According to the aforementioned article, a person with direct knowledge of the matter stated that employees across all Southeast Asia markets from all levels will be affected. Further, the number of impacted could be “in the hundreds,” with Singapore incurring the brunt of the Alibaba layoffs. CNBC reached out to Lazada’s Singapore spokesperson, who declined to confirm the headcount reductions.
“We are making proactive adjustments to transform our workforce, to better position ourselves for a more agile, streamlined way of working to meet future business needs,” the spokesperson disclosed to the business news agency. As well, the Lazada representative emphasized the need for reassessing its “workforce requirements and operational structure” to future-proof its business.
Lazada operates across Southeast Asia, namely Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam. Further, the insider source noted that all functions, including commercial, retail and marketing, will be impacted by the Alibaba layoffs. And some employees have allegedly received meeting invites, which may represent a harbinger.
Competitive Headwinds Sparked the Alibaba Layoffs
Over the years — excluding the 2021 meltdown — BABA stock has been a strong player thanks to the underlying company’s dominance in the broader Asian consumer economy. However, the takeaway from the Alibaba layoffs has been that this dominance has come under fire, especially in Southeast Asia.
That might explain the red ink that BABA stock printed. Though it’s not always the case, it’s also not unusual for headcount reductions to lift a company’s share price. To be sure, layoffs stem from financial or business difficulties; otherwise, there would be little point in initiating a morale-reducing action. However, such staff trimming also signals to investors that management is intensely focused on improving profitability.
Unfortunately, the Alibaba layoffs reflect concerns beyond just elevated costs. Per CNBC, Lazada faces stiff competition from rivals. In particular, Shopee — which is an e-commerce platform under Sea (NYSE:SE) — and TikTok Shop (a platform owned by Chinese tech giant ByteDance) present an intense rivalry. Also, Indonesia’s tech juggernaut GoTo inked a partnership with TikTok, broadening the competitive canvas in e-commerce.
Further, the Alibaba layoffs represent the latest in a tumultuous period for the company. Last year, Alibaba scrapped plans to spin off its cloud business. As well, the enterprise underwent a management shakeup.
Why It Matters
Although circumstances don’t appear so positive for BABA stock, analysts over the past three months rate shares a strong buy. The assessment breaks down as 18 buys, two holds and zero sells. Further, the average price target stands at $125.92, implying over 68% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
