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Why Alibaba Stock Got Cut in Half Last Year

By Rich Smith – Jan 8, 2022 at 7:07AM

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Forget about "fighting the Fed." Alibaba tried to fight the Chinese government last year and got cut off at the knees.

What happened

2021 was not kind to Chinese tech giant Alibaba Group (BABA -1.16%).

In a year that began with a headache, Alibaba stock spent all of January on an uptrend before turning south in early February and never looking back. By the time 2021 drew to a close, Alibaba stock had lost 49% of its market capitalization -- cut almost literally in half -- and at a cost to investors of more than $300 billion in market capitalization.


Red Chinese flag with a stock market superimposed and the shape of China's landmass in the middle.

Image source: Getty Images.

So what

What happened to Alibaba in 2021? "What didn't happen to Alibaba" is the better question.  

The bad news started in April when Chinese regulators fined Alibaba $2.8 billion for violations of the country's anti-monopoly laws and demanded the company undertake "comprehensive rectifications" of its business practices. Just three months later, China further demanded that Alibaba subsidiary Ant Group hand over its customer data to the government for use in developing a new (government-owned) credit-scoring system and further assist China in developing a state-backed cryptocurrency that would compete with -- or even eliminate -- Ant's own "Alipay" digital payments.

Even more regulations on the use of customer data -- China's "Personal Information Protection Law" -- followed in August, and more fines in November.

Now what

When all was said and done, it didn't matter that Alibaba grew its revenues 39% (through the most recent reported quarter) in 2021. Struggling through a pandemic and under heavy attack by its own government, Alibaba saw both its profits and its cash flow crash 30% year over year.

And yet, amid all the doom and gloom, Alibaba is trying to right the ship. In an attempt to lower its profile (and take itself out of regulators' crosshairs), in September Alibaba began trimming its media holdings, selling its stake in the Mango Excellent Media Co. Last month, the company moved to liquidate its 30% stake in Weibo (WB 0.10%) -- the "Chinese Twitter" -- in order to further shrink its profile.

Whether these moves will prove sufficient to cool the Chinese government's anger remains to be seen, and analysts remain cautious on the company's chances. According to data from S&P Global Market Intelligence, the consensus right now is that Alibaba's earnings will continue to shrink in 2022 and average sub-8% growth over the next five years.

Still, with its stock price cut in half and its price-to-earnings (P/E) ratio hovering around 15, Alibaba is beginning to attract interest from value investors such as Warren Buffett chum Charlie Munger, who just doubled his investment in Alibaba stock.

With any luck, 2022 could be the year that Alibaba starts to bounce back.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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