Rumor has it that executive chairman and co-founder Jack Ma will exit Alibaba (NYSE:BABA). Whether Ma is an executive or not has little impact on the Chinese retailing giant’s long-term growth prospects. Ma has not run the company as CEO since 2013. Yet his exit will hurt the company’s valuation, as markets already pushed the stock to yearly lows.
At a P/E of 50 times but a forward P/E of 21 times, investors should expect BABA stock to trade with high volatility. But in the last quarter, when the stock fell by over 20 percent, those in the know probably knew of Jack Ma’s planned exit. It also turns out the tariff dispute between U.S.A. and China was not the only reason for the stock’s underperformance. As the face of the company, Alibaba’s marketing and brand is closely connected with him. His departure will weaken the brand temporarily.
JD.com (NASDAQ: JD), iQiyi (NASDAQ: IQ), and Baidu (NASDAQ: BIDU) are all down in the same period, so Alibaba’s drop is not entirely due to Jack Ma leaving. The company and the other large-cap Chinese stocks need the U.S. and China to stand down on implementing punitive tariffs. Until this happens, the added costs will hurt demand and will benefit neither nation. Investors holding BABA stock or buying it on the drop will want a resolution more than ever.
