Has Alibaba Been Unfairly Punished?
Yesterday, the World Bank announced an expected growth rate of 8% for China’s economy in 2021. Yet, China’s largest company by market capitalization, Alibaba, has seen their shares drop by nearly ⅓, while the rest of the global markets have jumped.
The drop in share price is probably not due to Alibaba’s record revenue or operating income growth, both up by double digits in 2020 nor valuation. In fact, Amazon has a little more than half of the revenue of Alibaba and less than ⅔ of their operating income, but enjoys a valuation of $1.5 trillion in comparison to Alibaba’s $550 billion..
Why is there such a large disconnect? And why has Alibaba’s stock fallen so much in the last few months?
One contributing factor to the drop in stock price could be politics.
Alibaba is filled with political risk and uncertainty.
Many analysts believe the Chinese Communist party will take full control of the firm eventually, as it is China’s corporate crown jewel.
The company became ultra-successful by playing unfairly with their competitors. This has been allowed by the CCP so far, but now things might be changing.
Although Alibaba’s Chairman Jack Ma acts as a private entrepreneur, he is in fact part of the CCP. Lately, it seems his power has caused him to act with too much naivety. Mr. Ma has spoken out against the government and has angered many of the most powerful Chinese politicians.
Mr. Ma does not have the same influence and power that western entrepreneurs possess outside of China. Now, the CCP is ready to wake him up from the illusion that he could act like Elon Musk and that he and Alibaba would not be faced with any consequences. The question is: how much will Alibaba be penalized for Mr. Ma’s actions? That will drive the stock price over the near-term.
Written by the Rebellion Team
Edited by Christine Lee, Alexander Fleiss & Ariel Silverstein
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