BEIJING • Alibaba Group Holding looked like a sure thing a year ago, when it pulled off the largest initial public offering (IPO).
It had a lock on China e-commerce as the economy was surging and consumer spending was rising steadily.
Shares soared 76 per cent from the IPO price in just two months.
Then it all crumbled.
Alibaba came under fire from a China government agency, it cut deals that baffled investors and it replaced its chief executive as growth slowed. Most importantly, China's economy turned wobbly, jeopardising the rise in consumer spending Alibaba needed.
Its stock slid down, down, down to the IPO price and then below. The sure thing was no such thing.
What now? Investors who watched US$128 billion (S$179 billion) in market value disappear should not expect a reprieve any time soon.
Atlantic Equities' James Cordwell, the top-ranked analyst covering the stock, predicts the slowing Chinese economy will undercut e-commerce transaction growth until at least 2016. "All the operating metrics seem to be pointing in the wrong direction," he said. "Until investors feel some comfort in that slowdown bottoming out, it will be hard for the stock."
Many of Alibaba's troubles derive from a domestic economy over which it has no control. There were also early missteps.
Alibaba's chairman and co-founder Jack Ma has stated that shareholders would be the third priority after customers and employees, and that he and his partners did not want short-term market volatility to distract from building a successful business for the long term.
Alibaba vice-chairman Joseph Tsai said in an interview: "We don't think about events backward looking, we try to look forward."
The Hangzhou-based company is trying to push beyond China and e-commerce, announcing US$15 billion of deals. Many of its investments make strategic sense, but others have been harder to rationalise, such as stakes in a Guangzhou soccer team, a minor player in Chinese smartphones and an unprofitable entertainment studio.
"When its core business was doing fine, all these investments for future development were option values, but, with the slowdown, they make less sense," said Hong Kong-based analyst Li Muzhi of Arete Research Service.
Mr Ma's and his partners' aim for Alibaba to evolve in the next decade beyond commerce and the company's deals may ultimately make sense, but they are not adding to earnings yet and the company has not said when they will.
Barron's magazine this month predicted the stock could tank another 50 per cent, but other analysts have not given up on Alibaba. Of the 52 tracked by Bloomberg, 44 rate the stock a buy, with just two suggesting investors sell.
However, bearish bets on the stock have risen, with short interest rising to a record.