Alibaba’s IPO Journey: From Triumph to Turmoil
In 2020, Alibaba’s stock price hit an all-time high of $317.14, making it a popular investment choice as China’s largest e-commerce and cloud platform company. However, in the past two years, Alibaba has faced various challenges leading to its stock price falling below its IPO price of $68. One significant challenge was a Chinese antitrust probe resulting in a $2.75 billion fine and restrictions on Alibaba’s e-commerce business. The Chinese government also fined Alibaba for unapproved investments and acquisitions and suspended the IPO of its Fintech stocks.
Despite a 41% increase in revenue and a 23% increase in adjusted earnings per share (EPS) in fiscal 2021, Alibaba’s fiscal 2022 revenue only grew by 19%, and its adjusted EPS fell by 19%. Analysts expect its revenue and adjusted EPS to increase by only 10% and 6% in fiscal 2023.
Although Alibaba’s stock price may seem cheap at 12 times forward earnings, regulatory headwinds have yet to dissipate entirely. The Chinese government acquiring “golden shares” in two of Alibaba’s domestic businesses indicates it still plans to tighten its grip on Alibaba’s digital ecosystem.
Furthermore, Alibaba’s near-term growth prospects look grim as its sales during Singles Day in 2022 remained flat from the previous year. Meanwhile, JD.com and Pinduoduo continue to see superior growth, suggesting that many of Alibaba’s challenges were either self-inflicted or caused by the government rather than broader macroeconomic and COVID-related headwinds.
As Alibaba’s growth slows, it relies more on lower-margin businesses to drive sales growth, which is concerning as it generates all its profits from its commerce segment that subsidizes the expansion of its unprofitable cloud, digital media, and innovation initiatives divisions.