After penetrating the US market with a smashing $25 billion IPO, the storm surrounding Alibaba Group Holding Ltd (NYSE:BABA) appears to be dying out. Reaching an all-time high of $120 in mid-November last year, the share price currently stands at a modest $86.19, showcasing a 28% decline. Despite producing impressive financial across the board, Jack Ma seems to have failed to boost up investor sentiment.
Earnings report in the start of November revealed sales growth to have shot up by over 50%, pleasing investor sentiment and boosting share price to the highest high of $120. However, since mid-November the e-commerce giant has failed to reach another high and has consistently seen its share price spiral down. In fact, its price to tangible book value has decelerated with a current level of $15.48. Indeed, the release of the second earnings report saw the share price diving over 10%, as the company produced earnings below expectations. Despite announcing a 40% surge in revenue, the $4.22 billion total lacked investor appeal, as it failed to meet analyst estimates of $4.45 billion.
Internet analyst, Bob Peck, stated: “It’s a company that’s growing it’s top line, in sales or GMV north of 45%, its customers are growing 45%, its EBITDA margins have expanded from 50% to north of 58% now.”
Undeniably, apart from slight glitches, Alibaba has managed to produce impressive financials since its US debut. Therefore, the reason behind its falling share price is in fact much deeper. Accusations by Chinese authorities regarding the sale of counterfeit goods on Alibaba’s online platform, Taobao, have dented the company’s solid image following the IPO. Moreover, a lack of measures undertaken by the company to prevent such sale and other illegal activities has also raised countless red flags from the Chinese government. A report released by the Chinese State Administration of Industry and Commerce surfaced deep-rooted problems at the company that are setting off alarms for its American investors. The report exposed: “Illegal business exists on Alibaba’s Group’s trading platforms and for a long time the company has failed to pay adequate attention and failed to make measures to stop it. This not only is the biggest crisis of integrity faced by the company since it’s founding, but has also hurt other Internet companies that try to operate legally.”
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