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Alibaba: Where's The Bottom?

ALT Perspective profile picture
ALT Perspective


  • Alibaba has been caught in one storm after another. After reaching a new high above $200 in January, the share price is now back to below where it started 2018.
  • Beside the pressure from macro headwinds and competition, the stock also suffers from the perennial concern over its accounting and the possibility of interferences from the Chinese government.
  • The share price is now just above the well-tested multi-month support line at $164.
  • Could the low end of the analysts' price target prove to be an indication of a bottom as it did in the past?

The Volatile Stock Market Thus Far In 2018

Hangzhou-based Internet titan Alibaba (NYSE:BABA) has been caught in one storm after another. After a triumphant climb to a new price record in January, the stock wobbled before tumbling late in the same month as a rise in the 10-year treasury yield raised concerns that higher interest rates could ensue. In the next few trading sessions, Alibaba lost much of its gains for the year. Still, its performance was still better than that of the popular tech benchmark, the Technology Select Sector SPDR ETF (XLK), whose share price dipped below where it was at the beginning of the year. Subsequently, it managed to recoup some of the losses as sentiment improved in line with the broader market on favorable economic data and a belated response to an upward revision in its FY2018 revenue growth guidance.

Unfortunately, before it could recover to the above $200s level it achieved just a month earlier, Fed chief Jerome Powell's upbeat outlook on the economy and inflation spooked the market in the final trading sessions of February. Amid a flurry of deal-making, including a major investment in its Southeast Asian unit, Alibaba benefited from substantial positive media and analyst coverage and its stock staged another rebound from early March. Just when market players thought all is good, President Trump became the party spoiler with his firing of the first salvo against China with retaliatory tariffs on up to $60 billion in Chinese imports. Alibaba's stock reversed course and turned into a downtrend lasting till today. At this point, its year-to-date ('YTD') gains have all but completely disappeared. In contrast, another benchmark, the First Trust Dow Jones Internet ETF (FDN) still manages to be up 8.8 percent for the year.

First, Decide If Alibaba Is

This article was written by

ALT Perspective profile picture
I am honored to have been categorized as a 5-Star financial expert and ranked among the top 2% of financial bloggers on TipRanks in 2017/18. For a period, I was among the top 3 “Opinion Leaders” for Insider Ownership and Services, as well as top 5 for Long Ideas and Fund Holdings. I am an avid reader of market news and company publications with the aim of improving my investment acumen. I enjoy expressing my findings and opinions through writings. My appreciation and understanding of business strategies improved to a whole new level since completing an MBA (Distinction) from a FT100 MBA school. I have worked in companies with businesses that span multiple industries, according me with the exposure to a myriad of sectors.Check out my Author's Picks and over 190 Editor's Picks, among the highest in Seeking Alpha, if not the most.

Analyst’s Disclosure: I am/we are long BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may initiate a position in Tencent within the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (86)

Leon King profile picture
I live in Singapore about 2230 miles from Hangzhou China. Even though my friends and Chinese living in Singapore are a couple of thousand miles from China, they regularly buy from Taobao and T mall and pay by AliPay. AliBaba is very much part of life in China. That is not to say that there cannot be accounting irregularities. Madoff and Enron sticks out. But for sure Aliababa's business is real and thriving and expanding at light speed.Ditto for Tencents. Without people Muddying the water we may be paying higher prices. As Buffet put it, it's good to buy great business at low or reasonable . I'm long Baba and TCEHY and don't mind buying at even lower prices.
ALT Perspective profile picture
"Without people Muddying the water we may be paying higher prices."

Well said!
Clearly Jack Ma is the designated tycoon , by Chinese PolitBuro, layers of communist apparatchiks at every level of Alibaba, without Communist party blessing, Jack Ma and his company spearheading Chinese Communist party agenda ,would not exist.
ALT Perspective profile picture
Hi shogan, Thanks for your comment. In the U.S., there are many lobbyists hired by various corporations to influence the government. Few big businesses can truly claim they do not need any government assistance in one form or another. So I see that in China, such business-government interactions appear in a different manner but the essence is similar.
rnn profile picture
Its a herd mentality stock.
Those can be dangerous, and momentum can turn on a dime.
StrattonOakmont profile picture
Its amazing what one day can do!
Thank you for the article and the questions it raised. Whatever its shareprice, Baba is worth waiting for the summer with its very likely listing in China. Development on India Flickart's front also worth patience.
ALT Perspective profile picture
Thank you for your comment and sharing your thoughts.
10 Apr. 2018
Not for anything but https://cnb.cx/2Jzo6xJ.
They have made promises before so let’s see what happens now....
ALT Perspective profile picture
Hot off the press from WSJ: Ant Financial Services Group, carved out of his e-commerce giant Alibaba seven years ago, is preparing to raise $9 billion in a private funding round, according to people familiar with the matter.

That could value Ant at close to $150 billion, they said, making it by far the world’s largest unicorn—a term used to describe private companies valued at over $1 billion.
Stanward99 profile picture
The bottom was made Friday
I have used Alibaba Cloud since 2014. Even though I am more familiar and comfortable with Amazon's AWS offering, I could say that the BABA product has improved a lot over the years. Same with it's Alipay services. BABA's products and R&D output are indeed quite solid based on my experience
Nell_E profile picture
@choraleprelude how are using Alibaba cloud? what makes you decide which provider to go with? thx
The style of Alibaba cloud's management console interface is quite similar to AWS's. Thus if one is familiar with AWS, the person will also feel at home using Alibaba cloud... (whereas Microsoft Azure uses a very different design style in the UI interface)

As for how to decide which provider to go with, we chose Alibaba cloud to serve our customers in China and other main cloud providers to serve customers outside of China...
ALT Perspective profile picture
Thanks for sharing.
Azdoorbell profile picture
With all the investments BABA made in the last two months, will pay off down the road strongly
Vandooman profile picture
As someone who has done a fair amount of business in China I would add the following.

One of the main reasons BABA listed in the US was to gain credibility. No one in China trusts Chinese financial statements. It is a good sign but don't get too excited because an audit of BABA would be a formidable experience.

What sets BABA apart is the enormous depth and breadth of what it is doing in China and elsewhere in Asia. BABA could be many times as big as it is 10 years from now. It is a speculative play because of China but could be a huge winner. Going into the minute details of analysis of BABA is a total waste of time. What were the sales? What was the reported income and from what sources? Time to move on.

This is a company that can compete on a global scale and would be the biggest threat to Amazon in retail if they entered the US market. Ma is too smart to do that because why would he compete with a company that ignores poor profitability? Why enter the US when India will do? On the other hand BABA sells stuff very cheap because they do not build infrastructure so who knows? Get your goods in 5 days instead of 2 at a lower price.
Perhaps Ma's path is to get so wildly profitable they can enter the US market to then have the financial health to Amazon, Amazon.
ALT Perspective profile picture
Hi Vandooman, Outstanding comment. Thanks for sharing your insights.
BABA is an officially approved company of Chinese Politburo. Ma, is just a care taker, one wrong step and he will be replaced.
Vandooman profile picture
One wrong step and any CEO can be replaced.
which listing does baba closely follow? NASDAQ, tech, consumers Russell, kensho etc?
Glenn Abrett profile picture
As one of the seven sisters (tencent, amazon, facebook, microsoft, apple, google are the other six) baba sits atop the world of commerce and grows stronger every day. I thought one of the most significant events of the past few years were the allegations, made by the supposedly all powerful Chinese government, of fake designer goods being sold on Alibaba. Jack Ma basically told the government to mind its own business. The government backed down. As trumps bashing of amazon and the blown way, way out of proportion by the media 'privacy invasion' charges against facebook and the EU changes in various rules it is beginning to seem like governments are making a last ditch attempt to reign these monsters in. Maybe. But I doubt it. And in a very short time these seven will, at least collectively, be more powerful than any government.

Missiles and tanks are nice, but cash is king.
Chinese restrictions were behind the stock listing outside of China. The government could kill the stock if they were to enforce internal policy.

The listing came about because Goldman Sachs, an investment banker entrenched in our government, pushed the idea.

Does China recognize BABA stock as having voting rights?
BABA and AMZN should never be compared. They are different structures and cultures altogether. That said, BABA is a monster in both terms of revenue and growth as well as potential and my smallest holding in terms of my what-if factor. It's not a U.S. shop and so, trade wars likely won't impact it in many ways. In fact, it might actually bolster BABA if the U.S. is dumb enough to put tariffs on China and not on other Asian countries and manufacturers. (India will just buy the goods from China and then pass it through taking the "made in China" label off in the process. Isn't Capitalism great?!) I expect to see the price rocket forward over the coming years and agree with above comments that China will treat BABA like it's face to the world and won't let it fail despite some of the internal mis-givings.
Stanward99 profile picture
The Risk Reward, at this price is unreal, anything can happen as with any stock, as i have learned in 22 years of investing , however i am a buyer here of BABA and MOMO!
I expect that BABA will continue to bounce around for a while and then settle down to a slow upward climb- mirror of the health of economic China. Investing in BABA is for the long term, not for short term gains for investing. Long term in China has a different meaning than our own meaning of "long term."
ALT Perspective profile picture
Hi Jack, Thanks for making your first ever comment on Seeking Alpha right here in this article. Welcome!
StrattonOakmont profile picture
Its like buying coke at $7!
Leyton House Aces profile picture
I don't really care where BABA is today or next year. I have a full position at average cost of $98. I *do* care that it ends up much, much higher in next 10-15 years....like at $1000
Same target price at the same time for me
StrattonOakmont profile picture
My cost basis is around $92 for Baba. I just added on friday again. I agree though, in 20 years from now...I will have a handful more of companies worth a LOT. A better return than any dividend could dream of doing.
Buyandhold 2012 profile picture

No clue where the bottom is in Alibaba. It is not a stock that interests me.
09 Apr. 2018
Yet you ready the article and find it necessary to make that comment. Thanks for the update.
Stanward99 profile picture
Then why are you commenting?
ALT Perspective profile picture
BAH 2012, Thanks for reading and commenting. I appreciate your support.
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