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BABA Vs. Biden: Security Problems Emerge
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BABA Vs. Biden: Security Problems Emerge

Admittedly, things weren’t looking bright for Chinese e-commerce leader Alibaba (BABA) going into this year. Though some of its biggest problems looked less likely to hit, the company still had troubles to account for.

Now, one more has emerged: a new investigation from President Joe Biden’s administration. I was already bearish on Alibaba thanks to its other problems. This newest addition to the problem roster won’t make things any better.

Alibaba’s year in share prices demonstrates a company on the decline. The company spent most of the first six weeks of 2021 plateaued around $260 per share.

One week later, the company dropped from just over $270 to about $239. A slight upswing followed, but didn’t last. About a month later, the company was threatening to break through the $200 mark. It actually did break that mark with early July’s arrival.

Another small upswing gave investors hope, but by July’s end, the company was threatening the $185 mark. October brought hope as it went from just under $140 to almost $180 by the end of the month. Mid-November, however, ultimately proved that hope to be in vain as the company plunged once more to plateau around $130.

The latest problem for Alibaba comes from the Biden administration, which is investigating the company’s cloud computing arm. Reports note that the investigation is centered on Alibaba’s security, which may not be sufficient to protect the data stored within.

If that data falls into certain hands, it could pose a national security threat. More specifically, the Biden administration is investigating whether the Chinese government can access personal information stored within Alibaba.

That includes data belonging to U.S. citizens. If the results of the investigation turn up problems, the U.S. could demand changes to Alibaba’s security systems, or potentially even ban Americans from using Alibaba.

Wall Street’s Take

Turning to Wall Street, Alibaba has a Strong Buy consensus rating. That’s based on 20 Buys and three Holds assigned in the past three months. The average Alibaba price target of $192.65 implies 45.1% upside potential.

Analyst price targets range from a low of $140 per share to a high of $250 per share.

Potential Relief Ahead for Alibaba?

The latest news for Alibaba is bad once more. When you’re being investigated by a government, it seldom ends well.

Given Alibaba’s recent past of running afoul of the Chinese regulatory environment, it’s just that much worse. Throw in Alibaba’s susceptibility to an economic downturn in China and it makes Alibaba look almost poisonous.

However, this cloud may have a silver lining. It’s certainly bad news that Alibaba is being investigated by the U.S. government.

However, if the investigation turns up nothing, what does that do for Alibaba? If the Biden administration comes back with “no problems here, business as usual,” then that makes for a whole new faith in Alibaba.

That sign-off could go a long way toward re-establishing credibility in the field. It wouldn’t stop two of the biggest issues facing Alibaba: hostile domestic regulators and a significant exposure to discretionary income issues.

However, it would serve to silence anyone who thought that Alibaba wasn’t protecting data properly in its cloud systems.

With Alibaba’s dividend history nonexistent, the company certainly could use something to hang its hat on. Secure cloud-based operations as certified by U.S. government investigation might serve as that something.

Concluding Views

Alibaba’s short-term future is extremely risky right now. The worst news it can get is a loss of its U.S. business, if the Biden administration goes as far as it might.

That would be yet another blow to stagger a company already shaky on its feet. The best news it can get is that the problems aren’t as bad as feared. That removes one major problem, but it does little to help address the others already in play.

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