Since its listing on the New York Stock Exchange in 2014, Alibaba, also known as BABA, has undergone a wild journey with its stock performance.

The company has faced both peaks and valleys, much like the tale of the fabled Ali Baba himself. And like the mythical character, Alibaba seems to have finally escaped the labyrinth inside the caves.

Investing in Alibaba is already an adventure on its own. Since its IPO, the company’s impressive growth rates and market position in China initially attracted investors and sent its stock to an all-time high of $317.14 in October 2020.

After that, the real adventures of BABA began.

Over the next two years, Alibaba faced several challenges such as an antitrust investigation, several fines, new restrictions on its e-commerce business, an economic downturn due to COVID-19, and broader macroeconomic challenges in China. And there were even rumors of BABA potentially being delisted from the American exchanges!

However, recent developments suggest that the company may have found a magic lamp, and it shows in the stock price. But will they make the correct wishes to truly escape from the dangers of the cave?

Read on to find out!

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The Origin Story

Alibaba, a Chinese multinational technology corporation that focuses on e-commerce, retail, internet, and technology was established by Jack Ma in 1999 and has grown to become a conglomerate worth over $500 billion at its peak.

The company generates revenue through various business segments in China and international commerce, which accounted for 77% of total sales during FYE2022.

The core commerce segment which includes retail and wholesale marketplaces such as Lazada, Tmall, Taobao, and 1688 platforms, represents the majority of the company’s revenue.

Other revenue segments, such as Alibaba Cloud and Cainiao Logistics services, which together account for 23% of total sales, have experienced significant growth in recent years, thus diversifying the company’s revenue streams.

In August last year, Alibaba announced its first quarter revenue for the fiscal year, which was $30.7 billion, a 4% decrease from the previous year, but slightly higher than the expected $30 billion. Additionally, its adjusted profit per share of $1.75 was above the predicted $1.58 per share.

And in its November earnings report, Alibaba announced that its adjusted profit per share had increased by 5% to $1.82, however, its revenue had decreased by 6% to $29.1 billion.

The company also announced that it would be expanding its share buyback program by an additional $15 billion on top of the current $25 billion program. As of November 16th, the company has repurchased $18 billion worth of stock under the current program.

And then Came the ‘Bad Guys’

However, Ma’s relationship with the Chinese government started to deteriorate after he resigned from Alibaba’s board in September 2019. At that point, his controlling interest in Ant Group was the only significant influence he had on the company.

In October 2020, Jack Ma made critical remarks about the Chinese government’s financial regulatory policies during a speech about Ant Group’s plans at a banking conference.

Following this, the Communist Party of China canceled the Ant Group’s planned initial public offering. Investors believed that the cancellation of the IPO indicated hostility from the government. As a result, Jack Ma subsequently went into hiding.

Jack Ma’s tensions with Ant Group and the Chinese government persisted, leading to him relinquishing control of Ant Group in 2022.

Regulatory actions taken against Alibaba, further suggested that the Chinese government may have had a personal vendetta against Jack Ma.

And what followed in 2021 and 2022 was the great selloff of Alibaba’s shares. From a high of almost $320 per share to as low as $73 per share, which is almost a crazy 80%!

You must know by now that you should never mess with the ‘bad guys’!

… and a Genie Comes to Save the Day!

Recently, it was widely reported that activist investor Ryan Cohen has acquired a significant stake in Chinese e-commerce giant Alibaba, worth hundreds of millions of dollars.

He is reportedly pushing for the company to accelerate and increase its share buyback program. Cohen made his wealth by co-founding the online pet shop Chewy Inc and even became viral when he joined the meme-stock rush with Gamestop.

This development will surely grab the attention of retail investors in the US!

Another positive catalyst for BABA is the meeting between U.S. President Joe Biden and Chinese President Xi Jinping, during the G-20 summit on November 14th in Bali. It was viewed as a positive move to ease economic and political tensions between the two countries. These tensions have increased significantly after Speaker of the House Nancy Pelosi visited Taiwan in August.

A decrease in these tensions may attract value-seeking investors back to Chinese stocks, with Alibaba as a potential beneficiary, as it is a leading company in China’s retail and technology sectors.

And finally, China recently started to ease its zero-COVID rules following widespread protests against lockdowns across the country. This change in policy may lead to an increase in economic activity and an increase in shoppers at Alibaba’s online marketplaces and physical stores.

A recovery in the Chinese enterprise sector would also benefit Alibaba’s cloud platform revenues, and ultimately, their bottom line.

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But be Careful with What You Wish for…

The recent actions taken by the government against Jack Ma, Ant Group, and Alibaba are a cautionary tale for American investors in the company. It serves as a reminder that such government actions can also negatively impact the ownership stake of these investors.

It is also important to note that American investors in Alibaba can only own American Depositary Receipts (ADRs), and not direct shares of the company.

Still, investing in Alibaba remains risky due to the current tension between the United States and China.

Trade restrictions, accounting regulations, tariffs, COVID-19 sanctions, and tensions with Taiwan have all contributed to the deterioration of relations between the two countries.

As US investors own billions of dollars in Alibaba and other Chinese shares, they could be targeted by the Chinese government or the US government.

However, with all things considered, market sentiments are now beginning to show some appetite for risk and with price action for BABA beginning to show potential for an actual reversal for the stock, investing in Alibaba is now very compelling.

So, go ahead. Rub that lamp, I know you want to.

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