Did investors already miss their chance to buy low and sell high with Alibaba (NASDAQ:BABA)? The Chinese e-commerce powerhouse went public in September at $68 per share and closed at $94 on its first day of trading on the New York Stock Exchange. In November, shares hit an all-time high of $120. However, that price is now a distant memory as investors question Alibaba’s future.
Alibaba’s initial public offering of $25 billion made it the largest IPO in history, but as we now know, the bigger they are, the harder they fall. Shares are currently stuck in a downtrend and trade near $85, almost 30% below its previous high. The move lower was punctuated with an earnings release that disappointed analysts and shareholders.
For the three months ended December 31, Alibaba reported earnings of $0.81 per share on revenue of $4.22 billion. While earnings beat estimates, analysts expected revenue to reach $4.45 billion. Despite revenue growing 40% year-over-year, net income sank 28% during the period.
Alibaba explains that this is primarily due to share-based compensation, but a rise in expenses across the board indicates that e-commerce competition could prove costly for shareholders. For example, product development expenses surged 81% year-over-year in the quarter, while sales and marketing expenses jumped 59%.
Alibaba is also facing questions over its creditability. The company received criticism from Chinese authorities earlier this year in regards to counterfeit goods. The State Administration of Industry and Commerce claims many of the items for sale on Alibaba’s various websites violate trademarks, while a separate survey finds that only about one-third of the items listed on Alibaba’s Taobao site, China’s largest online shopping destination, are genuine.
Although counterfeit goods are nothing new for Chinese companies, it draws widespread attention when discussing a company with a market value greater than Amazon (NASDAQ:AMZN). In response to the findings, Alibaba questions the sampling methods but pledges to refine its tools in order to “protect intellectual property rights.”
Investors may certainly find potential in Alibaba shares. The company has grown to 334 million annual active buyers and raked in more than $1 billion in mobile revenue during the previous quarter. Yet even those numbers may be too generous given that fake orders, known as brushing, are used by sellers to build recognition on Alibaba’s sites. Considering that there’s no scarcity of publicly-traded Internet or retailer names, investors may want to shop elsewhere.
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