The e-commerce giant may record its first-ever sales decline in this year’s ‘Double 11’ online shopping extravaganza as its shares sink to their 2014 IPO level

Key Takeaways:

  • Alibaba’s merchandise sales for this year’s ‘Double 11’ festival, also known as ‘Singles’ Day,’ could drop 1.5% year-on-year, according to a Bloomberg forecast
  • The company’s depressed stock has recently traded as low as $58.01, below the $68 price from its blockbuster New York IPO in 2014

By Fai Pui

The shopping fest known as “Singles’ Day” in China has been a goldmine for its inventor, e-commerce giant Alibaba Group Holding Ltd. (BABA.US; 9988.HK), since the event’s inception in 2009. The company found its own riches by calling on lonely hearts to “spoil yourself with your own wallets,” creating an annual event to rival the U.S. Black Friday shopping phenomenon each November.

But Double 11 has rapidly lost its luster since the global pandemic began two years ago. Gone is the huge gala that Alibaba used to throw around the event, as well as the dozens of journalists who flew in from around the world to watch the latest record-breaking spending. Meantime, a major anti-monopoly crackdown that hit Alibaba with a record $2.8 billion fine last year also appears to have sapped the vitality from Double 11.

A Bloomberg research report forecast that sales from this year’s Double 11 may be far from cause for celebration for the e-commerce giant. It forecasts that weak consumption in China’s “zero-Covid” climate, combined with stiff competition from older rivals like JD.Com (JD.US; 9618.HK) as well as newer ones like Douyin, the Chinese version of TikTok, could cause Alibaba’s gross merchandise volume (GMV) from this year’s Double 11 to drop 1.5% year-on-year to 532 billion yuan ($73.4 billion).

That would mark the first decline for Alibaba at the festival since it invented the event. Bloomberg estimates will still manage to boost GMV at its own Double 11 event this year. But the amount will rise by just 8%, far lower than year’s 28.6% growth.

Big cancellations coming?

Depressed consumer demand isn’t the only demon Alibaba and its rivals will be fighting this year. They will also have to grapple with disruptions in China’s massive logistics network that gets products from warehouses to their buyers. Such disruptions, which are higher this year than usual, are expected to lead to record order cancellations this year, Bloomberg predicts.

A Double 11 downturn wouldn’t really be that new since downward trends in Alibaba’s business began showing up as early as the beginning of this year. Alibaba’s revenue grew just 8.9% to 204.05 billion yuan in the first three months of 2022, the slowest in its history. Revenue for its latest fiscal year through March rose only 19%, to 853.1 billion yuan, with net profit and Non-GAAP adjusted net profits plunging 59% and 21%, respectively. The bad news continued after that, with the company failing to report a year-over-year revenue increase for the first time ever in its first fiscal quarter through June.

Next Thursday, Alibaba will announce its results for the quarter through September. Major investment banks and brokerages expect a slight improvement, forecasting 2% to 5.3% year-on-year revenue growth, with an average forecast for 8% non-GAAP net profit growth.

The combination of official anti-monopoly measures and depressed consumer sentiment during the pandemic has left Alibaba and many of its peers struggling. That’s left some investors shifting their hopes from Alibaba’s core e-commerce business to its growing cloud unit. Alibaba Cloud already tantalized investors in its last fiscal year when it recorded a 1.15 billion yuan adjusted profit before interest, taxes, and amortization (EBITA), representing its first-ever profit on that basis.

But lingering effects from the pandemic are making investment banks less optimistic about the company’s cloud revenue growth for its September quarter. Citibank and CCB International forecast the cloud business’ revenue will post revenue growth of 4% and 5%, respectively, for the quarter, slowing from 10% growth the previous quarter.

Below IPO price

Alibaba listed on the New York Stock Exchange at $68 per share in 2014, becoming the world’s largest IPO at the time as it represented an emerging new generation of Chinese tech giants. Its legendary story extended far past the IPO, with revenue and adjusted profits rising at an unheard of average annual rate of 46.2% and 30.5%, respectively, during the five years through its fiscal 2020. The company’s share price touched a high of $317.14 in October 2020, more than four times its IPO price.

But just two years later that heyday seems like a distant memory, with Alibaba haunted by a number of setbacks since then. Things began to sour with the failed listing of its online financial services spinoff Ant Group in 2020, and then the company received the record anti-monopoly fine in April the next year. A regulatory tussle between the U.S. and Chinese stock regulators, combined with China’s official maintenance of its “zero-Covid” policy for nearly three years, have also undermined investor confidence in Alibaba.

That confluence of factors has taken a toll on the stock, which crashed back to earth and sank below its IPO price by hitting a low of $58.01 in late October, before rising back above the $68 mark this week.

Nothing can really describe the mixed feelings among investors who have held Alibaba shares since the IPO. Those early believers are inevitably disappointed after witnessing the huge run-up in the company’s revenue in the following years, only to see the stock gyrate wildly before falling back to its IPO level.

UOB Kay Hian analyst Curtis Yeung believes that Alibaba has passed through the eye of its storm already and could be a good investment candidate now. “The company’s forecast price-to-earnings (P/E) ratio is only 9.9 times, much lower than its historical average of about 21.1 times, broadly reflecting slowing growth in the Chinese market. It is therefore fairly reasonably valued and investors can watch it closely,” he said.

But the road will be far from smooth for Alibaba, which still faces continued impact from the pandemic, and competition from traditional e-commerce peers such as Pinduoduo Inc. (PDD.US)and, as well as social media platforms such as Douyin that attract e-commerce customers using a live streaming model. While management is pinning hope on new businesses such as Alibaba Cloud, it also needs to think about the challenges posed by these newcomers to its core e-commerce business. Otherwise, it could one day discover its e-commerce crown has lost its luster.

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