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Fairview HK: The Chinese e-commerce powerhouse is dirt cheap
If you had invested $1,000 in Alibaba Group Holding Limited (BABA) shares at its all-time high of $317 in late 2020, you would have just $230 now, a 77% loss.
BABA is the uncontested leader in Chinese e-commerce, with a 47% market share. And its clout stretches across multiple industries, including brick-and-mortar retail, shipping, and cloud computing (37% market share). Through network effects, BABA's scale provides it with an economic moat. More customers attract more merchants, increasing competition and product listing quality. In addition, the e-commerce industry provides a "captive" market for other services such as payment processing and other financial services.
Until recently, BABA's numerous advantages aided it in maintaining a steady growth rate, with sales increasing 32% year on year to $28.6 billion in 2021. However, a top-line slowdown, combined with a tough and unpredictable regulatory environment, makes its future appear bleak.
Political and regulatory risks, unlike financial measures such as sales and profitability, are exceedingly difficult to assess and anticipate, particularly in less transparent nations such as China.
According to Time magazine, BABA's issues may have begun when its founder, Jack Ma, campaigned for financial and regulatory change in the country. Within weeks, the controversial tycoon was summoned for interrogation, and the planned $37 billion spin-off of BABA's financial division, Ant Financial, was halted despite earlier getting approval.
This was the first of numerous regulatory proceedings taken against BABA (typically related to alleged antitrust violations). For investors, the experience illustrates an unsettling overhang that might come back to harm the corporation.
Another red sign is deteriorating US-China ties. The US Commerce Department unveiled substantial measures in October aimed at limiting the supply of semiconductors and chip-making equipment to Chinese firms. This is a significant setback for BABA's objectives in technologies such as cloud computing, which rely on this powerful technology. In the second quarter, BABA's cloud division accounted for 9% of total revenue (17.7 billion RMB or $2.4 billion).
Fairview HK Limited is one of the foremost privately owned Asia-Pacific orientated, boutique wealth management firms in Hong Kong. We offer our services to a selected group of families, family offices, institutions and fund managers, you may visit our website https://fairviewhk.com/
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