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Why Alibaba Stock Crashed Last Week

Ahead of China e-commerce giant Alibaba (BABA) posting results, shares rallied to nearly $88.00 before plunging to as low as $77.00. The company startled shareholders when it announced it would cancel spinning off its cloud division.

In the Q2 report, Alibaba missed analyst expectations by reporting an adjusted EPS of $2.14. Revenue grew by 8.5% Y/Y to $30.81 billion. The cancellation of a full spin-off of Cloud Intelligence Group rattled the stock. The company said that it may not achieve the intended effect of shareholder value enhancement. Instead, the firm issued its first-ever dividend, which yielded around 1.0%.

The use of cash for a tech firm in China signals a dramatic strategic change. Alibaba wants investors to buy the stock for a small income. Investors who speculated on Alibaba reversing its dramatic slowdown over the years are disappointed. Furthermore, co-founder Jack Ma’s family trust will sell nearly 10 million ADS to raise around $870 million.

The drop in BABA stock hurt Bilibili (BILI), Tencent (TCEHY), and competitors PDD (PDD) and (JD).

Alibaba is nowhere near becoming the next Amazon (AMZN). Its business faces severe competition from JD and PDD. Chinese consumers are cutting down on spending.

Expect the occasional rebound but an overall downtrend in Alibaba shares.