Why Alibaba Stock Is Sinking Today
Key Points
Shares of
Alibaba
(NYSE: BABA)
are plunging on Thursday. The company’s stock was down 7.9% as of 12:43 p.m. ET and fell as much as 8.3% earlier in the day. The steep decline comes as the
S&P 500
(SNPINDEX: ^GSPC)
edged up 0.3% and the
Nasdaq Composite
(NASDAQINDEX: ^IXIC)
was up 0.1%.
The Chinese tech giant reported quarterly earnings that fell significantly short of Wall Street’s expectations.
Alibaba misses earnings targets
Alibaba reported weaker-than-expected results for the quarter ended March 31. Its net income of $1.71 million (12.38 billion Chinese yuan) was well below analysts’ expected $2.93 billion. Revenue grew 7% year over year to $32.58 billion, also falling short.
Growth slowdown raises concerns
The 7% revenue growth rate is less than previous quarters, pointing to a deceleration and highlighting issues in Alibaba’s core e-commerce business. The Chinese economy isn’t recovering the way many investors had hoped, and consumer spending has not returned to levels analysts had forecast.
Alibaba also faces increased competition from
JD.com
and Temu domestically, while AliExpress, Alibaba’s international marketplace, is reeling from the U.S.-China trade tensions. AliExpress also faces competition from Temu and Shein, as well, of course, from
Amazon
.
The short term could be bumpy
While Alibaba faces significant challenges in the near term, the company is making significant investments in artificial intelligence (AI) and building for the future. Still, with a rocky domestic economy and international trade wars, the company’s stock could struggle for some time. However, long term, I think Alibaba will succeed, and with a
price-to-earnings ratio (P/E)
a little over half of that of Amazon, its stock is attractively priced.
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