The stock of Alibaba Group Holding has fallen 43 percent in the last 6 months. It has seen a sharp decline since February 24. It also showed weakness on Monday (March 7). Its price fell 2.47 percent in the morning to 96.55 Hong Kong dollar. On March 4, its price had come down below 100 Hong Kong dollars.
Alibaba announced the financial year 2021 results on February 24. The company had informed the investors about its future plans. However, the results indicate a slowdown in its revenue growth and an increase in costs. Because of this there is pressure on this stock. Let us know what are the reasons for the decline in this stock.
Poor performance of core business segments
Alibaba’s growth on a year-on-year basis was 10 per cent in FY21. This is the lowest growth ever. This is because of the poor performance of its core segment. Its e-commerce and digital media performance has been weak. The cloud segment, which has shown strong growth over the past several quarters, has also been sluggish. On a quarter-on-quarter basis, both its revenue and EBITDA have seen a significant decline.
Increase in cost and investment
Alibaba has focused on increasing investments as a long-term strategy. This has had an impact on margins. The company has been supported by good revenue from domestic e-commerce in the last few years. However, the company cannot rely solely on e-commerce growth to invest for the future. This means that the margins of the company will remain under pressure in the coming times. Apart from this, Alibaby is getting tough competition from rival company JD.com.
Regulatory action against technology sector
Regulator’s strictness against technology companies in China continues. On March 1, 2022, the government issued a guideline for food delivery companies. In this, it has been asked to reduce the food delivery fee to support the merchants. This led to a sharp fall in the shares of many Internet platform companies.
Difficulty in listing on the Hong Kong Stock Markets
Technology companies are facing difficulties in getting their shares listed directly on the Hong Kong Stock Exchange (HKSE). The reason for this is the concern of the Chinese government regarding data security. Alibaba-invested beauty technology company Perfect Corporation has finally decided to list in the US.
Russia-Ukraine conflict
Fighting continues in Russia and Ukraine. Last week, news of a fire broke out at Europe’s largest nuclear plant. Since then, threats to the safety of 15 nuclear reactors in Ukraine have increased. If the war between Russia and Ukraine continues, the possibility of an accident like the Chernobyl in 1986 has increased. This can spread the radiation throughout the area. This is also affecting the shares of technology companies like Alibaba.
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