Alibaba Group Holding Ltd: What Is Holding Back BABA Stock?

alibaba stockThese Concerns Hit Alibaba Stock

Alibaba Group Holding Ltd (NYSE:BABA) posted its second-quarter earnings this morning and beat the consensus estimates.  

However, BABA stock is under pressure due to an ongoing investigation by the U.S. Securities and Exchange Commission (SEC) over its accounting practices. China’s largest e-commerce player is also gearing up for its “Singles Day” sale on November 11, which is also under scrutiny by the regulators.  

Alibaba stock reported revenue and earnings that beat analyst expectations in the recent quarter as it better monetized its growing user base. Revenue was $5.14 billion, an increase of 55% year-over-year, and the company earned an adjusted $0.79 per share. Revenue from core commerce increased 41% year-over-year to $4.2 billion. (Source: “Alibaba Group Announces September Quarter 2016 Results,” Alibaba Group Holding Ltd, November 2, 2016.)

Mobile monthly average users on the China retail marketplaces reached 450 million in September, an increase of 23 million over June, while annual active buyers reached 439 million. 


The total paying users for Alibaba’s cloud business stand at 651,000 now, and the revenue has grown by 130% year-over-year to $224.0 million, significantly narrowing losses. Revenue from digital media and entertainment increased 302% year-over-year to $541.0 million.

The company maintains a competitive position in digital entertainment in China through a combination of licensed premium content and self-produced programming. However, the costs of developing these new businesses is impacting the margins, which is likely to put pressure on BABA stock.

As per media reports, the value of goods sold on Alibaba’s online platforms has begun to plateau, so growth through online customers is harder to achieve.  To compensate for slow growth in sales, Alibaba is trying to bring in new international brands. The company has been building other businesses in the past few years.

According to Jefferies LLC analyst Jessie Guo, Alibaba has gone beyond the position of an e-commerce play, as it has moved into cloud computing and logistics arms, as well as electronic payments through Ant Financial. (Source: “Alibaba Earnings Show  It Again Defying China’s Slowdown,” New York Times, November 2, 2016.)   

However, since Alibaba’s logistics unit is part of the SEC inquiry, BABA stock has suffered due to its reputation of lacking of transparency in the company’s accounting practices. As the Chinese company promises to be more open with investors about these details, it shall not be a smooth ride for Alibaba stock.

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