Shares of Alibaba (NYSE: BABA) took a major hit last December, following the
Chinese government’s announcement that it will be opening up an anti-trust
investigation, citing practices such as preventing its vendors from selling on other
platforms. The anti-trust probe is part of a crackdown on monopolistic behaviour in
China’s booming internet space and the latest setback for Alibaba founder Jack Ma.
The news comes just after founder Jack Ma criticised the Chinese Communist
Party’s (CCP) financial regulatory system, resulting in the IPO of Ant Financial,
Alibaba’s fintech subsidiary, getting blocked.
Alibaba’s Rise to Dominance
Alibaba was founded in December 1999 by former school teacher Jack Ma, along
with group of 18 tech pioneers to leverage the power of the wholesale internet
marketplace. Since then, it has become the largest e-commerce company on earth,
engaging tens of millions of online users daily through its three primary e-commerce
sites, Taobao, Tmall and Alibaba.com. The company, often referred to as China’s
Amazon has expanded across multiple areas including cloud computing, food
delivery, music streaming as well as a licensing agreement with Walt Disney unit
Buena Vista International, giving it access to a large amount of Disney content.
Too Much Power
The tech giant and its rival Tencent control more personal data than Google and
Facebook, sometimes collaborating with local authorities to help track down wanted
individuals. However, the companies much like their American counterparts, are
guilty of buying out smaller competitors, squashing any likelihood of innovation and
creating a monopolistic environment. The sheer size and influence of these
juggernauts have caused the CCP, who hold power unlike any institution in the
Western World, to view them as a threat.
With Alibaba’s future prospects still up in the air, investors are becoming increasingly
more and more concerned. The company’s stock has fallen below its 50-day,100-
day, and 200-day moving averages, indicating more selling pressure ahead. The
company’s shares look set to remain on the defensive in the days to come as it
continues to face tough challenges, with the Chinese government reportedly seeking
to take a larger stake in the company. Alibaba, however, remains an integral part of
the economy and its future development, as such the Chinese government must be
wary of scaring off Western investors and crippling its most successful company.
The drop in price also presents an opportunity for value investors to purchase
shares, as it looks historically cheap at 18 times forward earnings.
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