What happened
Shares of Alibaba Group (BABA 1.83%) took a dive last month as Chinese stocks continued to get pressured over trade tensions and concerns about a weakening economy. Investors also positioned themselves for Alibaba's earnings report early in November amid fears that the above problems would weigh on its results. Consequently, the stock fell 14% in October, according to data from S&P Global Market Intelligence. As the chart below shows, the stock's losses tracked with a broader trend in the Nasdaq.
So what
There was little company-specific news out on Alibaba as the stock seemed to react to many of the trends weighing on other tech stocks, including rising interest rates, which make growth stocks less appealing. In addition, Alibaba faces pressure from headwinds in China, as Chinese stocks have widely fallen this year. Alibaba looks particularly vulnerable to President Trump's plan to pull out of the Universal Postal Union, which would raise shipping rates on Chinese e-commerce vendors who sell goods to the U.S.
Image source: Alibaba.
Alibaba's worst day of the month came on Oct. 10 as the stock fell 6% in part because Keybanc Capital cut its price target from $220 to $215 on lower expectations for its core e-commerce business. At the same time, Alibaba executive vice president Joe Tsai railed against the simmering trade war with the U.S. at a conference, saying it could threaten the global economy.
Now what
In early November, Alibaba shares moved higher briefly on a Trump tweet that said that trade talks with China were progressing. However, the stock slid the following day as Alibaba reported second-quarter earnings and cut its full-year forecast. Overall growth in the quarter continued to impress as revenue jumped 54% to $12.4 billion, but margins in its e-commerce business weakened, and adjusted earnings per share increased 12% to $1.40, though that easily beat estimates at $1.07.
However, Alibaba lowered its full-year revenue growth forecast by 4% to 6%, saying, "In light of current fluid macro-economic conditions, we have recently decided not to monetize, in the near term, incremental inventory generated from growing users and engagement on our China retail marketplaces. We expect this decision to benefit SMEs (Small and Medium Enterprises) on our marketplace platforms."
That statement signals that investors should expect continued pressure on Chinese stocks.
