🛒 Can Alibaba Turn A New Leaf In 2022?

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🛒 Alibaba: A Year To Forget?

Alibaba (BABA) was the world’s biggest IPO back in 2014. How times change! 2021 has been its worst year, with shares down 50% for the year. While the company looks to emerge out of the woods, it appears as though the troubles have not ended just as yet.

A Speech That Cost $500B

Alibaba was the world's biggest IPO back in 2014, having raised $25B in the process. Founder Jack Ma's rags-to-riches story of an English teacher becoming one of the wealthiest and most powerful tech entrepreneurs in the world was set to be etched in folklore. The numbers speak for themselves.

The singles day in 2020 saw Alibaba ring in sales of $77B. That's 21x as many orders by value as Amazon's two-day global Prime Day brought in! That’s a staggering number, no matter how you look at it. 

Alipay was Alibaba’s payment platform which overtook PayPal as the world’s largest mobile payment platform in 2013. Out of Alipay was born the Ant Group, which became synonymous with all things personal finance in China. 

The Ant Group prepared for what would have been the largest ever IPO (worth $37B), which would value the company at $300B. All these plans stopped in their tracks on Oct 24th, 2020, when Jack Ma gave a speech at a conference in Shanghai. Here’s an excerpt:

“But the problem in China is the opposite: it is not a problem of systemic financial risk, because China's financial sector basically doesn’t have a system. Its risk is actually a "lack of financial system.”

He went on to say Chinese banks have a "pawnshop mentality.” These unflattering words riled Chinese regulators who pulled the plug on Ant Group’s much-anticipated IPO. Ma went missing for six months. The Ant Group was ordered to overhaul its financial business. An antitrust probe was launched into Alibaba Group Holding. 

Just two days before Ma's controversial speech, Alibaba’s market cap was $837B. A successful Ant IPO would have taken it closer to a $1T valuation. That was not to be. 14 months later, as of the market closing on December 27, Alibaba's market value stands at $311B. If value erosion had a stat, this is it.

Many Potholes On The Road

When Jack Ma resurfaced six months later, he was penitent. He spoke endearingly about the importance of regulation. Alibaba and Ant bent over backwards to appease the powers that be that were breathing down their necks. Regulators imposed $2.8B in fines as part of their antitrust review.

The regulators aren't done with Alibaba just yet. Last week, Chinese regulators suspended an information-sharing partnership with Alibaba Cloud Computing, over accusations that it failed to promptly report and address a cybersecurity vulnerability. In more worries for the cloud division, the government has already asked state-owned companies to migrate their data from private operators like Alibaba and Tencent to a state-backed cloud system by next year.

As if this wasn’t enough, back in August, a female employee accused her coworker and a customer of sexually assaulting her on a business trip. Instead of investigating the incident, the company terminated the female employee, which led to an immense backlash and weeks of bad press.

The bad news kept piling up. Alibaba’s latest quarterly results were underwhelming. EPS declined 38% Y-o-Y. Its core e-commerce business missed estimates as well. The company also slashed revenue growth guidance to ~21.5% from the earlier 29.5% Y-o-Y. The ostensible culprit: a slowing economy and lower consumption. 

Of Alibaba’s 946M monthly active users, only 50M subscribe to its 88VIP service (equivalent to Amazon Prime). The silver lining is these clients spend 8X more than the average customer. The company is looking to double the ranks of these subscribers but didn’t give any timelines on when it’ll get to that number.

At the same time, the company didn’t have any new updates to give to investors. If anything, Alibaba said it’s planning to reorganize its e-commerce business but didn’t go into too many specifics. A new CFO is expected to take over from April 1, 2022. 

Alibaba shares are down ~60% from their peak this year. Between appeasing regulators, dealing with the competition that’s running away with its customers, repairing its battered reputation, and unexciting guidance on its financials - 2021 is an eminently forgettable year for Alibaba. But, for now, the management can only hope 2022 doesn’t come anywhere close to the year that was!

Market Reaction
BABA ended at $114.80, down 1.53%. Shares are down 50% this year.

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