Alibaba shares back at all time lows as China drags on sales

Alibaba shares took another triple-whammy hit on Wednesday, falling as much as 8%, as slowing revenue growth, exposure to China and souring sentiment on US tech stocks slashed $14bn off the company’s market value.

Trading volume had already passed 90% of the stock’s 50-day average within the first fifteen minutes of the New York Stock Exchange session.

Investors reacted swiftly after the operator of China’s largest online shopping destination said first-quarter revenues were a below-expectations $3.27bn.

This was a 28% rise year-on-year, but below the average analyst forecast of $3.39bn and represented Alibaba’s slowest quarterly growth for three years.

Slower sales were accompanied by BABA’s slackest general merchandise volume over the same time frame, despite the fact that it rose 34% to CNY673bn.

Non-GAAP net income was $1.5bn, +30%.

The company also announced a $4 billion two-year share buyback.

I commented on the coalescence of bearish risks facing Alibaba late last month, when China’s stock market woes came to a head and the country’s economic troubles also became increasingly difficult to shrug off.

With the stock having fallen by a third in the year to date, Wednesday’s drop pushed it to its lowest levels since its IPO last year.

Of course, there’s an implied opportunity in today’s selling for investors who take a bullish view of the potential for upside from Alibaba’s recent strategic diversification.

The ecommerce giant, with 8 main websites each visited by millions of users per day, has been trying to expand beyond its core online-only shopping platforms.

Alibaba aims to stem a slowdown in revenue growth and the total value of goods transacted over its websites.

On Monday, Alibaba said it would invest $4.6bn in bricks-and-mortar retailer Suning Commerce Group Co Ltd to gain more reach in logistics and electronics capabilities in which rival JD.com is arguably stronger.

Even so, it’s worth noting that Alibaba’s strategic priorities remain globalisation, out-doing its rivals on mobile, Chinese expansion and investing in cloud.

The stock has returned to the same support area that buttressed it during the Chinese stock market’s crash on 7th and 8th July.

However the uptrend between then and its peak, close to a 50% projection was little more than 12% higher than BABA’s all-time lows.

With momentum not quite exhausted on the downside (please see the Slow Stochastic sub-chart in yellow and blue) the risk of further new lows therefore seems above-average.

Any delay before completion of the current sell-off (represented by the Stochastic lines reaching or exceeding their oversold boundary) is unlikely to take the shares above $80 per share, since the candle representing Wednesday’s trading ‘engulfs’ price action in eight of the previous trading sessions.

Alibaba Group Holding daily chart

Please click image to enlarge