What happened
Shares of Alibaba (BABA 0.64%) were sliding again last month as the Chinese tech giant posted a disappointing earnings report and continued to be impacted by global tensions and fears of China's regulatory crackdown.
According to data from S&P Global Market Intelligence, the stock finished February down 16%. As you can see from the chart below, the stock was volatile but finished down sharply in the last week of the month after the company reported disappointing earnings results and war broke out in Ukraine.
So what
Alibaba shares dipped in the first week of the month on speculation that SoftBank, the prolific investor, was going to sell its shares in the Chinese tech giant after Alibaba filed to issue 1 billion American depositary shares. However, SoftBank denied any tie to the filing and the stock recovered those losses.
Image source: Alibaba.
Later in the month, Alibaba stock started falling along with other Chinese tech stocks on reports that officials were looking into new regulations, including forcing delivery companies to lower fees in areas that have been hit hard by COVID-19.
Alibaba's third-quarter earnings report only confirmed investor fears that the crackdown was having a significant impact on the business. Revenue growth slowed to just 10%, well below its historical levels, and the company took a $4 billion goodwill impairment charge related to being forced to sell its digital media and entertainment assets. Adjusted earnings per share in the quarter fell by 23%.
The quarter marked Alibaba's slowest period of growth as a public company, casting doubt on its ability to return to its historical growth and profitability levels. In its core China commerce segment, for example, the company has been forced to lower fees on vendors, which helped slow revenue growth to just 7%.
Now what
Alibaba stock has continued to slide in March as the war in Ukraine, which has crushed Russian stocks, has led investors to rethink their positions in Chinese stocks, which were already threatened by delistings, as Chinese investments have similar vulnerabilities. Much like with China, investors once thought Russia was a safe place to park their cash, but are now learning the opposite. In China, investors also face a Communist government that is rewriting the rules on enterprise, and U.S.-China relations have been unfriendly, especially lately.
Alibaba is still a strong company, and the stock could eventually recover, especially as it trades at a price-to-earnings ratio of 12. However, the near-term headwinds facing the company are substantial, and that doesn't seem likely to change anytime soon.
