What happened
Shares of Alibaba (BABA 0.27%) got crushed this week, plunging as much as 18.7%. As of the market close on Friday, the stock was down 15.4%.
There wasn't one single catalyst but rather a trifecta of bad news that sent the e-commerce provider careening lower.
NYSE: BABA
Key Data Points
So what
The stock got hit coming out of the gate Monday on reports that Alibaba was one of several companies to be fined for regulatory violations. China's State Administration for Market Regulation levied a fine of 2.5 million yuan (roughly $370,000) for failing to report five acquisitions to government antitrust regulators. Alibaba generated revenue of $134.5 billion last year, so the fine is a drop in the bucket. However, drawing the continuous gaze of China's government watchdogs is never a positive development.
Things went downhill on Thursday as word broke that executives from Alibaba's cloud segment had been called to appear before Chinese authorities in Shanghai regarding a massive data theft that was uncovered in June. Information about nearly 1 billion Chinese residents was compromised and offered for sale online for roughly $200,000. An investigation revealed that the data, which was stored on Alibaba's cloud, had been unsecured for more than a year, allowing hackers to access and ultimately download the information.
The week ended on a dour note, as a monthly read on the Chinese economy showed that macro conditions deteriorated further, recording its slowest growth rate in more than two years. The country's gross domestic product (GDP) grew at just 0.4% year over year in June, far below the 1% growth forecast by economists. The results were even worse on a quarter-on-quarter basis, falling far short of the 4.8% it generated in the first quarter. The worsening economy is being further exacerbated by near record unemployment and surging inflation.
Now what
Alibaba is already a volatile stock plagued by decelerating growth rates, as both its China commerce and cloud computing segments grew revenue by just 8% and 12%, respectively. And that was before the latest challenges emerged.
A slowing economy, record unemployment, and growing inflation will all erode consumer spending power. Add to that the unwanted glare of the regulatory spotlight, and investors shouldn't touch Alibaba with a 10-foot pole.
