Alibaba Shares Plunge After Company Warns of Potential Slowdown

By Jonathan Walker | November 23, 2021
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
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PARIS, FRANCE - MAY 16: The logo of the online e-commerce company Alibaba Group is displayed during the 4th edition of the Viva Technology show at Parc des Expositions Porte de Versailles on May 16, 2019 in Paris, France. (Image: Chesnot/Getty Images)

Shares of Chinese tech giant Alibaba have taken a hit after it reported a dismal performance for the quarter ending in September. The company’s net income declined by 87 percent year-on-year to 3.4 billion yuan (US$530 million). This was far below analyst predictions who were expecting the company to log in around 24 billion yuan (US$3.76 billion) in net income. Last year, Alibaba had registered 26.5 billion yuan (US$4.15 billion) in net income for the same period.

At the Hong Kong stock exchange, Alibaba’s shares were valued at 164.80 HKD (US$21.15) on Nov. 17. After the quarterly performance was announced, the share value slumped to 133 HKD (US$17.07) as of Nov. 23, a decline of over 19 percent in about five days.

While the company’s poor performance for the September quarter has influenced the stock price, what has also negatively impacted the share is the fact that the firm is apprehensive about its near-term future. Alibaba slashed its annual revenue growth forecast from 23 to 20 percent, well below analyst expectations. If the prediction turns out to be true, it will be the company’s slowest annual revenue growth since the stock made its debut back in 2014.

Daniel Zhang, CEO of Alibaba, blamed the company’s woes on rising competition and weaker consumer consumption. The declining consumer appetite was evident during its 11.11 Global Shopping Festival which saw the slowest growth rate since 2009. Increasing regulatory pressure has also weighed heavily on the Chinese tech company.

Earlier this year, the company was made to pay a $2.8 billion fine after a government probe accused it of enjoying a dominant market position for several years. So far this year, Alibaba’s stock has declined by over a third. 

On Nov, 20, the State Administration of Market Regulation (SAMR) announced further fines on Alibaba, blaming it for engaging in misconduct. Alibaba was one of several companies fined by SAMR for failing to disclose 43 deals. Alibaba’s purchase of a 44 percent stake in Ele.me in 2018 and acquisition of navigation firm AutoNavi in 2014 were cited as two violations by the company.

“It is rare for regulators to trace back cases that happened a long time ago, but indeed a large number of companies didn’t declare their deals according to the law in the past,” Zhai Wei, executive director of the Competition Law Research Centre at East China University of Political Science and Law in Shanghai, told the South China Morning Post (SCMP).

On Nov. 22, Alibaba and other tech stocks declined due to continued regulatory pressure and an increase in treasury yields. The bearish mood in the market was strengthened after a CCP-backed media outlet called for more stringent regulation on tax collection from online platforms.

“The paring of some risks in the tech sector seems to continue into the Asia session, with rising yields a key concern when it comes to debt cost and valuation for these growth names,” Jun Rong Yeap, market strategist at IG Asia Pte, told Bloomberg. The Hang Seng Tech Index fell to the lowest level in two weeks, dropping almost two percent at one point. Alibaba dropped to a new record low.