Please ensure Javascript is enabled for purposes of website accessibility

Why Alibaba Stock Fell 13.9% in July

By Billy Duberstein – Aug 5, 2021 at 6:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Chinese tech stocks plummeted as Beijing ramped up its regulatory crackdown.

What happened

Shares of Chinese e-commerce leader Alibaba Group Holding (BABA 9.64%) fell 13.9% in July, according to data from S&P Global Market Intelligence. Alibaba had already been under fire ever since its financial arm, Ant Financial, saw its IPO canceled by Chinese regulators last year. That was followed in April 2021 by a $2.8 billion fine for anticompetitive practices.

Last month, however, marked a whole new ball game for Chinese technology stocks broadly, especially those listed on U.S. exchanges. Thus, Alibaba's stock got cut down further with the rest of the sector.

A young man operates his cell phone sitting on a rooftop at night in front of a skyline.

Image source: Getty Images.

So what

While actions against Alibaba and founder Jack Ma kicked off this regulatory campaign, Alibaba mostly fell in sympathy with the sector, as other companies became the main targets of China's regulatory crackdown in July. In the early part of the month, regulators banned DiDi Chuxing from app stores, citing violations of data collection and usage policies. However, many interpreted the move as retaliation against Didi for going through with its U.S. IPO, even after authorities apparently didn't want the company to do so.

Regulators then decimated the online education sector, saying online education companies would be prevented from making a profit on after-school tutoring services. And another government edict commanded food delivery companies to adhere to local hourly minimum-wage laws. Though rival Meituan is a leader in the space, Alibaba also competes in delivery through its and Freshippo platforms.

This heavy-handed onslaught of government actions caused panic selling across the entire Chinese technology sector. Since Alibaba is a large component of many Chinese technology ETFs and index funds, it was hit along with the rest, despite most of July's crackdowns being directed at other companies.

Now what

Alibaba just reported quarterly earnings in the early days of August, with revenue growth of 34% missing estimates), but adjusted earnings per share of 16.60 yuan ($2.57) beating estimates. Given the "glass half-empty" mentality around Chinese stocks of late, the stock sold off, despite management increasing its buyback authorization from $10 billion to $15 billion through 2022.

At a valuation of just around 20 times next year's earnings estimates, Alibaba's stock seems quite cheap, especially since it also has a healthy net cash position of around $50 billion and equity interests in many other companies. However, the Communist Party's crackdown on tech companies remains a big wild card. Still, for those willing to bet the regulatory onslaught will end at some point, Alibaba's leading positions in e-commerce and cloud computing could present an attractive long-term opportunity.

Billy Duberstein owns shares of Alibaba Group Holding Ltd. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. and Meituan. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alibaba Group Stock Quote
Alibaba Group
$87.56 (9.64%) $7.70
Meituan Stock Quote
$21.67 (8.35%) $1.67
DiDi Global Inc. Stock Quote
DiDi Global Inc.
$2.67 (4.96%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.