Shares in Chinese e-commerce giant Alibaba (BABA) may have ticked up in October but that was perhaps an illusion. Poor results in the latest quarter saw the price drop 11% in the US. The current level (29 November) of $132.32 was last seen at the end of 2018.
The share price has been in decline since it peaked at an all-time high in October 2020. The fall came after a speech by CEO Jack Ma attacked the Chinese government over outdated practices and failing to support entrepreneurs. The govenment, known be to be sensitive to criticism, responded by targeting his businesses. Other Chinese stocks fell as the authorities in China came down hard on a number of its biggest companies for what they allege were anti-competitive practices.
What has prompted the stock to fall and is the downward trend reversible? What is the future of the Alibaba stock price?
In this article, we look at the recent drivers for the share price and the latest analyst Alibaba stock projections.
Has the Alibaba share price bottomed out?
The Alibaba share price has been under increasing downward pressure since it reached an all-time high of $309.92 per share on 12 October 2020.
Alibaba (BABA) stock news has been dominated by moves by the country’s financial regulators as they have become more interventionist, imposing fines or restrictions on other China-based internet giants, including Tencent (0700), Didi (DIDI), Meituan (3690) and Pinduoduo (PDD) for alleged anti-competitive practices.
The Chinese government fined Alibaba $2.8bn in April for what it called monopolistic practices. The amount was equivalent to 4% of the company’s 2019 revenues. The share price climbed by more than 9% on 13 April in response to the news, as the market had anticipated a harsher penalty. But the share price soon resumed its downward trend.
On 17 August, China’s State Administration for Market Regulation launched new regulations to limit anti-competitive behaviour among the big internet companies. The biggest Chinese technology stocks lost more than $50bn in market capitalisation in response, with Alibaba dropping by 4.8%, Tencent falling by around 4%, Meituan moving down by 3.5% and JD.com (JD) shedding 5.2%.
The Alibaba share price had initially started to decline after the government halted the $37bn dual Hong Kong and New York initial public offering (IPO) of the Ant Group financial services business, in which Alibaba holds a 33% stake, just days before the listing in November 2020. In September of this year, the regulators moved to break up the group – which has more than one billion users – into three separate businesses. Ant Group will have to spin out its Huabei credit card unit and its Jiebei lending unit and create a new credit scoring joint venture, which would be partly state-owned, the Financial Times reported.
The Alibaba share price fell by 11.3% in September, in response to the report as well as concerns about the potential debt default of Chinese real estate giant Evergrande. On 3 September, Alibaba agreed to invest RMB100bn ($15.5bn) across 10 “key initiatives to promote common prosperity in China”, in a move that appeared to be aimed at the antitrust regulators. According to the filing with the Shenzhen Stock Exchange on 24 September, Alibaba was forced to sell its 5% stake in TV broadcasting company Mango SuperMedia at a loss, before the end of a 12-month lock-up period agreed when it acquired the stake last year.
But the stock has been trading higher in recent days, as investors looked to pick up the stock at a discount. A filing with the US Securities and Exchange Commission (SEC) on 5 October showed that Daily Journal Corporation, owned by Berkshire Hathaway (BRK) vice chairman Charlie Munger, has increased its shareholding in Alibaba by 82.7% since its July filing. It now holds 302,060 shares, alongside shares in banking firms Bank of America (BAC), Wells Fargo (WFC), US Bancorp (USB), as well as South Korean conglomerate Posco.
The BABA share price dropped from $166.99 on 31 August to $148.05 at the end of September, slipping further to $139.63 on 4 October. But the stock rose to $143.14 on 5 October, then continued to move higher, reaching $177 on 1 November.
Despite the regulatory troubles the company has encountered in the past year, analysts point to the fundamentals of its business operations as demonstrating the potential for continued strong growth in its financial performance.
In its quarterly earnings on 3 August, Alibaba reported a 34% year-over-year increase in revenue in the first quarter of its 2022 financial year to $31.87bn. The company’s adjusted earnings before interest, taxes, and amortisation (EBITA) margin was 20.3%.
Alibaba’s total active consumers reached 1.18 billion at the end of the June quarter, an increase of 45 million from the March quarter, including 912 million consumers in China and 265 million overseas served by its Lazada, AliExpress, Trendyol and Daraz businesses.
In November its results disappointed the market causing a sharp drop in price. In the three months ending September, Alibaba booked $31.1bn worth of revenue, rising 29% year-on-year, but missing the Refinitiv analysts’ consensus expectation of $30.5bn.
Its bottom line, however, fell. Non-GAAP (generally accepted accounting principle) earnings were down 38% year on year and below the market consensus. The decline came despite the number of active users climbing to 1.24 billion in the 12-months to September. Alibaba lowered its revenue growth outlook for the full year ending March 2022 to 20%-23% from nearly 30% previously.
How do analysts now view the company – is Alibaba stock a buy or sell?
Alibaba stock forecast: to buy, sell or hold?
At the time of writing, 29 November, BABA technical analysis showed indicators were "sell" on the one-day timeframe, based on data from TradingView. The Relative Strength Index was neutral, while the simple and exponential moving averages were giving sell signals on most time frames.
For the long term, the average Alibaba share price forecast from 31 analysts that have issued ratings on the stock is $227.78, with a low estimate at $170 per share and a high of $407 per share, according to MarketBeat. The low end of the range was a 15% premium where the share price closed on 1 November. The consensus rating put the stock at a buy, with 25 buy recommendations, two hold ratings and two sell ratings.
On 1 October, analysts at KeyCorp reduced their Alibaba stock price prediction to $200 per share from a previous target of $250 per share, while maintaining their overweight rating. Wealth Management firm Raymond James downgraded the stock from a strong buy to outperform, reducing its share price target from $300 per share to $240 per share.
The previous day, Citigroup had also reduced its BABA stock forecast from $300 to $240 per share.
Forecasting site WalletInvestor projects that the Alibaba share price might kick off 2022 at $135.87, and then end it at $124.6.
It predicts the stock could fall back $116.78 level by late 2024, and trade at $112.6 by late December 2025.
In the meantime, Coin Price Forecast is more bullish on the long-term outlook, predicting that the stock could end 2021 at $143 per share, then rise further from $200 at the end of 2022 and $235 at the end of 2023. It suggests the stock could reach $310 by the end of 2025 and $420 by the end of 2030.
When considering analyst commentary or predictions from algorithm-based forecasting services, it’s important to keep in mind that they can and do get their estimates wrong. You should always do your own research to form a view of the outlook for an asset and the relevant market conditions. Note that this article does not constitute financial or investment advice.
While some analysts expect the BABA share price to rise over the long term, there are short-term risks that the price could fall further.
Whether you accept the market analysts’ predictions is up to your judgement. It’s always vital to carry out your own research and keep in mind that past performance is not an indicator of future returns.
US-listed shares in Alibaba offer investors a way to gain exposure to the growing Chinese e-commerce portfolio. However, there is a risk that the share price will remain under pressure from intervention by financial regulators in China.
Whether Alibaba is a buy depends on your personal circumstances. Your decision should be based on your attitude to risk, your expertise in this market, the spread of your portfolio and how comfortable you feel about losing money. It is important to do your own research and never invest what you cannot afford to lose.
The outlook for the Alibaba price in the long term will depend on the outcome of the Chinese government’s ongoing scrutiny of the country’s technology stocks, and whether it will require the company to divest any more of its assets, among other factors. Whether the stock is a good fit for your portfolio depends on your personal circumstances, investment timeframe and risk tolerance.
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.