Actions of Alibaba (NYSE : BABA) fell another 22.7% in November, according to data from S&P Global Market Intelligence. The company not only reported disappointing profits, but also sold after the Chinese cyberspace administrator asked another company to pull off US stock exchanges, causing further concerns for Chinese stocks like Alibaba which are also listed. in the USA.
In the quarter ended in September, Alibaba increased revenue by 29% and reported earnings per share of $ 1.74 per US depositary share (ADS). While that revenue appears to be solid growth, both digits missed analysts’ estimates – and profits even declined amid higher costs. Plus, even that nice revenue growth figure was bolstered by an acquisition. Without it, sales growth was only 16%.
Even worse, Alibaba’s core business – and its only profitable business right now – only grew 3% in the quarter. Of course, the company was making a tough comparison to 2020 fueled by the pandemic, but Alibaba also acknowledged in its release of its results that increased competition played a role. China’s regulatory crackdown could foster increased competition in e-commerce, eating into Alibaba’s moat against other platforms.
And the regulations are linked. At the very end of the month, the Chinese cyberspace administration asked the carpooling giant Didi Chuxing (NYSE : DIDI) to withdraw from the American stock exchanges for security reasons. At the same time, the Securities and Exchange Commission is preparing rules for Chinese stocks to follow in order to stay on US stock exchanges.
Didi’s delisting and new SEC rules have raised fears that Alibaba may ultimately be delisted from the US stock exchanges, causing uncertainty as to what current US ADS shareholders would do in this case.
There is a lot of bad news about Alibaba now, but the stock is undeniably cheap based on current earnings and projections. While missed earnings are never pleasant, it happens to a lot of stocks, and Alibaba’s stocks are so cheap right now that the bad news seems to be being taken into account.
However, the prospect of delisting is a greater potential risk in the short term. Alibaba is unlikely to be ordered to immediately withdraw from the list like Didi, as Didi thwarted Chinese authorities who had asked the company to delay its IPO.
In contrast, Alibaba has been listed on the NYSE for years and the new SEC rules would likely give Chinese companies three years to comply with the new audit rules. That would likely delay any potential delisting until 2025, and Alibaba is double listed in New York and Hong Kong. These Hong Kong stocks may be a better bet for investors worried about delisting here in the US