Why Alibaba shares cratered this week

What happened

Shares of Ali Baba (NYSE: BABA) was crushed this week, plunging as much as 18.7%. As of Friday’s market close, the stock was down 15.4%.

There wasn’t a single catalyst, but rather a trifecta of bad news that brought the e-commerce provider down.

So what

The stock was hit out of the gate on Monday following reports that Alibaba was one of several companies to be fined for regulatory violations. China’s State Administration for Market Regulation imposed a fine of 2.5 million yuan (about $370,000) for failing to report five acquisitions to government antitrust regulators. Alibaba generated $134.5 billion in revenue last year, so the fine is a drop in the bucket. However, attracting the constant gaze of Chinese government watchdogs is never a positive development.

Things took a turn for the worse on Thursday when rumors surfaced that executives of Alibaba’s cloud segment had been called to appear before Chinese authorities in Shanghai over a massive data theft uncovered in June. Information about nearly a billion Chinese residents has been compromised and put up for sale online for around $200,000. An investigation revealed that the data, which was stored on Alibaba’s cloud, had been unsecured for more than a year, allowing hackers to access and ultimately download the information.

The week ended on a dour note as a monthly reading of China’s economy showed macroeconomic conditions deteriorated further, recording its slowest growth rate in more than two years. The country’s gross domestic product (GDP) rose just 0.4% year-on-year in June, well below the 1% growth forecast by economists. Results were even worse quarter over quarter, well below the 4.8% generated in the first quarter. The deterioration of the economy is further exacerbated by near-record unemployment and galloping inflation.

Now what

Alibaba is already a volatile stock plagued by decelerating growth rates, as its China commerce and cloud computing segments only increased revenue by 8% and 12%, respectively. And that was before the final challenges appeared.

A slowing economy, record unemployment and rising inflation will all erode consumers’ purchasing power. Add to that the unwanted glare of the regulatory spotlight, and investors shouldn’t hit Alibaba with a 10-foot pole.

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Danny Vena has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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