Alibaba: Has Become A Horrible Investment And Determining If It’s Time To Sell

Summary

YTD shares of BABA have declined by 46% and the bottom may not be in as tax-loss harvesting season is upon us.

BABA’s recent earnings fueled the never-ending sell-off as EPS and profits came in under expectations, and BABA revised their revenue guidance for next year with a lower growth rate.

When shares of BABA are compared to big tech companies in the U.S., its valuation looks like a value stock as several metrics are steeply discounted.

E-commerce and cloud infrastructure spending are projected to increase significantly over the decade along with the Chinese economy, which provides some tailwinds to the BABA investment case.

maybefalse/iStock Unreleased via Getty Images It’s the home stretch of 2021, and tax loss harvesting season is upon us. With the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) up 25.41% YTD and many tech companies outperforming the market, there aren’t many losers in the space to select from. Alibaba (NYSE: BABA ) has been a horrible investment in 2021 as shares of this Chinese tech juggernaut have declined by 46%. Many have viewed BABA as a value play throughout 2021, myself included, yet regardless of the Chinese economic future projections, BABA’s growth factors, or financial analysis supporting the value argument, investors have lost confidence in many companies originating in China, and BABA is at the top of the list.

BABA’s YTD chart is a perfect example of a falling knife that has wounded many portfolios, causing a sea of red to appear on the screen. At one point, the investment community rallied around Charlie Munger’s addition of BABA, but it wasn’t nearly enough to break the downward trend. Immediately after, earnings headlines surfaced about BABA delivering a big miss and soft guidance as their 2022 revenue estimate was lowered. The recent earnings were enough to take the wind out of BABA’s sails and decimate any forward momentum it created in October. BABA’s share price could get a lot worse as this has become a prime candidate for tax-loss harvesting and offsetting some monstrous gains investors may have cashed in on during 2021. Being a shareholder of BABA hasn’t been fun, and it’s been disheartening if you believe the numbers because BABA still seems undervalued. I have been a shareholder of BABA, and I am not throwing in the towel, but I am downgrading my sentiment to neutral. Going into the homestretch of 2021, I think we could see another 10-20% in what has seemed like the never-ending downward spiral as the recent news could push investors to select BABA as a tax loss candidate. (Source: Seeking Alpha) What’s going wrong with Alibaba

If it’s not one thing, it’s another as something is always negatively affecting shares of BABA. Throughout 2021 BABA has been at odds with the Chinese government. BABA had been in the crosshairs earlier in the year as China handed them a $2.75 billion fine for anti-monopoly violations. The Wall Street Journal reported that The Ant Group, which is an affiliate of BABA, had been discussing sharing its customer data with the Chinese government as part of a new credit-scoring business. If this occurs, multiple state-run entities within China would be able to access Ant Group’s Alipay customer records on financial transactions. The Ant Group IPO was taken off the table, and Jack Ma, who is BABA’s CEO, disappeared for several months. After Jack Ma’s resurfacing, BABA pledged 100 billion yuan which is roughly $15.5 billion over five years, toward Xi Jinping’s common prosperity vision.

If the baggage from China’s unfriendly business environment wasn’t enough, BABA just lowered its 2022 revenue forecast. In the recent earnings release , BABA lowered its 2022 fiscal year revenue guidance to 20-23% compared to the consensus estimate of 28.49%. BABA referenced macroeconomic conditions and the competitive landscape as two of the reasons why they were officially revising their 2022 guidance. BABA also missed EPS estimates by a large margin and saw its QoQ and YoY net income in their Q2 drastically decline. The combination of a mixed report that delivered lower than expected numbers and baggage associated with China’s business landscape has been more than enough to have investors heading for the door.

In recent days, shares of BABA have formed another leg down as the earnings report wasn’t digested well by the investment community. In the last five days alone, BABA has declined by -15.87% as it hovers around $140. Things aren’t all sunshine and flowers as on Thursday; news broke that China’s State Administration fined […]

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