When investors are seeking discounted, beaten-down stocks based in China, political risks are the biggest unknown. Alibaba (NYSE:BABA) is considered the Amazon.com of China.
That comparison is becoming less apt by the day.
China’s crackdown on Alibaba’s AliPay spinoff last year is still hurting the share price. The record fine paid for monopolistic behavior should have put an end to the Chinese government’s risk. But when China questioned DiDi’s data collection practice and set new restrictions on the education tutoring business, BABA stock fell.
Alibaba offset its weakening revenues in its quarterly report by announcing a stock buyback. Still, management discussed the ongoing regulatory concerns. It blamed the slower cloud revenue growth from a top customer that stopped using the overseas cloud service. The customer cited local regulatory requirements. Had Alibaba excluded sales from the top customer, revenue would have grown 40% instead of 29%.
New regulatory requirements are somewhat arbitrary. Investors are left guessing. Buying BABA stock at $200 is a bet that the stock bottomed. It can go either way. Investors should not buy for a discount. Instead, wait for regulators to clarify Alibaba’s positioning in the e-commerce and cloud business. Once the stock recovers and removes the discount from the unknowns, only then is Alibaba investable.
