What happened to the Alibaba stock price?

Alibaba (NYSE: BABA) stock price is not doing well in 2024 as the company faces a mountain of challenges in China and abroad. It has dropped by almost 6% this year, 26% in the past 12 months, and by 60% in the past 5 years. As a result, it has lagged behind all major indices like the Nasdaq 100, S&P 500, and the Dow Jones.

Good company but a lot of issues

Alibaba was once the hottest Chinese stocks in Wall Street. Seen as China’s Amazon, most big institutions and retail investors invested in it. At its peak, its total market cap surged to over $881 billion, making it one of the biggest companies in the world. Its valuation has since dropped to $186 billion.

Alibaba share price collapsed as the company faced several major challenges. In China, Beijing tightened its screws on the tech sector. The most notable event was the decision by Chinese regulators to halt the Initial Public Offering (IPO) of Ant Financial, a company that was then valued at over $300 billion.

The company has also been caught in the middle of the ongoing tensions between the United States and China. For example, some American companies like Nvidia and AMD have been barred to sell their most advanced semiconductors to Chinese firms.

Alibaba cited this decision when it ended its planned split of its cloud computing business in 2023. The goal was for the company to separate its retail-focused company from its cloud enterprise in a bid to create more value.

Alibaba is also facing major challenges. Its cloud computing business is not growing as fast because of the intense competition by the likes of Amazon, Microsoft, Google, and IBM. While Alibaba has a strong market share in China, its presence abroad is quite small.

Its retail business is also seeing strong competition from companies like Shein and Temu. Temu is owned by PDD Holdings, commonly known as Pinduoduo. More competition is from companies like Suning.com.

Therefore, a combination of a tough regulatory environment, strong competition, and tensions between the two biggest economies in the world has pushed investors away from Alibaba.

What next for Alibaba stock?

Despite these challenges, Alibaba is still one of the best companies to invest in based on its fundamentals. 

First, Alibaba has been actively reducing its outstanding shares through buybacks. Its total share count has dropped from its record high of 2.7 billion to 2.5 billion today. It bought shares worth over $4.1 billion in the first quarter alone. It is now implementing a $27 billion buyback program through 2027.

Alibaba’s share outstanding and revenue

Second, Alibaba has one of the best balance sheets in the industry. The most recent results showed that Alibaba has over $35 billion in cash and $42 billion in short-term investments. It can easily convert these investments into cash if needed.

The company also has $8.3 billion in equity investments and $5.6 billion in restricted cash. On the other hand, its total current liabilities stand at $63 billion. Altogether, Alibaba can pay all of its debt and have over $127 billion in liquidity remaining. 

Despite its challenges, Alibaba is still a highly profitable company. It had a net profit of $10.59 billion in 2023 and $14.12 billion in the trailing twelve months. The management hopes to continue growing this profitability by cutting costs and boosting its growth.

Alibaba’s valuation is also incredibly cheap, even when you factor in China’s discount. It trades at a trailing PE ratio of 13.3, much lower than the sector median of 18.09. Its PEG ratio of 0.06 is smaller than the sector industry of 0.59. 

Alibaba valuation metrics

Therefore, fundamentally, a case can be made for investing in Alibaba stock. However, realistically, it is still risky to invest in it because of tensions with Washington, which is considering banning TikTok and other “CCP-controlled” entities.

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