12/7/2023: What Happened to Alibaba?
Pinduoduo recently surpassed Alibaba on market capitalization and Alibaba stock is trading barely above its $68 IPO price in 2014. Alibaba’s growth has slowed dramatically in recent quarters. Alibaba’s revenue only grew 8% YoY in Q3 2023 while Pinduoduo grew 90+%. China’s consumer sentiment has been lethargic ever since the brutal zero COVID policy was lifted and its property bubble popped. Consumers switched to lower cost options, cut back discretionary spending and made a lot of their purchases on social media platforms directly . Alibaba’s market share for e-commerce in China went from ~80% when it went IPO in 2014 to ~40% today.
It’s a perfect storm of slowing consumer spending growth and changing consumer habits in China. On top of that, Alibaba went through major leadership changes. Founder/CEO Jack Ma stepped down in 2019. His successor Daniel Zhang stepped down earlier as CEO this year and announced his resignation from the company in September. Ant Financial, a spinoff 33%-owned by Alibaba, was forced to cancel its planned $30B+ IPO in 2020 due to pressure from the Chinese government. All this internal drama probably impeded their capabilities to deal with the rapidly changing environment. It appears that the Chinese government has a lot of influence on how the company is run. I expect the company will continue to struggle as it slowly loses relevance and all the government meddling probably doesn’t motivate company leaders to work hard to turn things around.
Alibaba is quite a cautionary tale. It took a few years for investors to understand the gravity of the situation. But when Jack stepped down as CEO and Ant Financial’s IPO was canceled, investors should have known the company was on a down trend. It could have stayed strong for longer but the Chinese government seems to play a role in weakening it. Though no big strong technology company is forever. Each would falter in its own way and we have seen this movie many times: GE, IBM, Kodak, Ford and many many others companies that eventually fell out of dominance. But it’s still shocking how fast the decline is for Alibaba.