It’s another setback for online retail kingpin Alibaba (BABA). The company was engaged in talks to raise some money and spin off some properties.
However, investors seemed hesitant, and Alibaba backed off altogether. It’s just the latest in a growing series of reversals for the company, and why I remain bearish on Alibaba. There are simply too many factors against Alibaba to make it a good play, at least for now.
The last 12 months for Alibaba shares are an ongoing disaster. Alibaba shares have been on an essentially downward track for the last year. Back in February 2021, Alibaba shares traded around $270.
Fast forward to today, and they’re trading close to $110. While the company did see some rallies in the meantime — April, June, and October all featured small upward jumps — the overall trajectory has been downward.
There were actually signs of potential recovery in progress in October, in fact. These failed to take hold, and by mid-November, the worst losses the company saw all year kicked in. That gets us to today, where the company is trading down around its $110-$130 range lows.
Alibaba’s latest attempt to raise funds did not go well. The company wanted to pull in an extra $1 billion from potential investors to put behind the Singapore-based online property Lazada.
Alibaba hoped to ultimately spin off Lazada, potentially even getting the company its own initial public offering (IPO). However, investors questioned Lazada’s valuation, and Alibaba ultimately shut down the talks without pulling in the hoped-for billion, reports noted.
Wall Street’s Take
Turning to Wall Street, Alibaba has a Strong Buy consensus rating. That’s based on 19 Buys and three Holds assigned in the past three months. The average Alibaba price target of $189.13 implies 70.9% upside potential.
Analyst price targets range from a low of $140 per share to a high of $250 per share.
Good Numbers, Bad Environment
Building a case to be bullish on Alibaba isn’t all that hard. The company’s numbers go a long way toward making it a worthwhile proposition. After all, it’s currently trading well under its lowest price targets, and is currently running at less than half of its highest price targets.
The upside potential here is certainly substantial. It also remains one of the biggest online shopping properties around, particularly in China.
Most consider China a growth market. It’s also a major exporter, which gives its economy a little extra boost since it depends less on internal operations to sustain it and more on everyone else’s internal operations.
However, Alibaba also has more than a little arrayed against it, too. First, there’s the issue of the Chinese economy. Alibaba’s Chinese focus means problems in the wider Chinese economy are problems for Alibaba.
A recent report found that China was at greater risk of a slowdown without an extra push into market competition. Reports suggest that Alibaba is already set to be hit by larger issues in the Chinese economy, reporting the slowest-ever growth its seen in the December quarter.
Worse, broader elements of Alibaba’s operations were recently impacted by another Chinese government probe. Specifically, the former Communist party chief Zhou Jiangyong was arrested on suspicion of taking bribes in a case linked to Ant Group.
Since Alibaba owns around a third of Ant Group, this could be a problem later on. The Chinese government has already been especially vigilant in pursuing Alibaba in the past. That position relaxing any time soon seems unlikely.
Just to top it off, Alibaba’s dividend history — or lack thereof — limits its value to investors. It can’t be a worthwhile income stock without that dividend.
Its ability to function as a growth stock, meanwhile, is questionable. Current price targets suggest the company could double in value. However, it’s easy to question how likely those gains actually are.
Concluding Views
Alibaba stock is well off its highs right now. That may prompt some interest in getting in; the “buy-the-dip” strategy is still a thing, after all, and this “dip” has been going on for most of a year now.
It’s easy to wonder, however, at what point it stops being a “dip” and starts being a “tradition.” There is some support for buying in on Alibaba, but there are still plenty of problems to keep potential buyers out.
The failed attempt to raise cash to spin off Lazada only supports the idea of problems in Alibaba’s midst. Alibaba is having troubles enough, so why invest in an attempt to spin off what amounts to another, smaller, and more limited Alibaba?
It will be subject to the same potential issues of a Chinese spending slowdown, and with economic headwinds hitting the country, we may see those show up in spending on Alibaba sooner than we expect.
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