Chinese e-commerce giant Alibaba Group Holding Ltd. has seen its stock plummet nearly 80% from its 2020 highs, leading to its valuation to drop to an all-time low and its market capitalization now comparable to upstart rival PDD Holdings Inc. The derivatives market is indicating further trouble ahead, with increasing bearishness predicted by options traders prior to Alibaba’s upcoming earnings report. The forward earnings estimates for the company have also declined about 4% over the past month, showcasing a tough road ahead for the company.
Following the arrival of new entrants in the crowded online retail market in China and steep discounting, Alibaba is facing fierce competition from rivals like Douyin and PDD. Market analysts are eager to see whether the company is able to maintain its overall growth and market share amidst these challenges. These challenges have resulted in the stock trading near its lowest valuation ever, currently at 8 times its forward earnings, positioning it as one of the cheapest technology stocks in China.
Despite efforts by the company’s new management to revamp the business by focusing on scaling down non-core business, ramping up investment in global expansion and artificial intelligence, and improving core operations by moving resources from its Tmall site to Taobao, analysts are predicting weaker revenue growth and lackluster performance in the next four quarters as a result of this focus on lower prices. With options traders expressing increasing bearishness and more pain predicted for Alibaba, investors looking for an end to the freefall of the company’s shares may be in for a long wait.