Alibaba (NYSE:BABA) is an example of a stock that took its eye off the ball and struck out big. Now it is scrambling to regain its footing. Alibaba’s ongoing restructuring has failed to win over the market, resulting in a 9% year-to-date decline in its stock, a 22% decline over the last 12 months, and a more than 31% drop from its 52-week high.
Although founder Jack Ma endorsed the Chinese online retailer’s turnaround plans, investors might not want to rush in. Alibaba is a behemoth. Righting the ship is going to take time.
A Closer Look at Alibaba Stock
Trying to be all things to all people doesn’t always pan out, especially under China’s political system. It’s the problem of trying to run a capitalist business in a communist economy. The two are often at odds and the government doesn’t like to be shown up.
Alibaba ran into that during the pandemic when Ma criticized regulators for stifling innovation. They came after the e-commerce giant hard. Ma was called before the regulators, an anti-monopoly probe was launched into Alibaba, and Ma’s Ant Financial had its much-anticipated IPO scrapped. Ma went into hiding.
Others found out the hard way as well. Chinese property developer Ren Zhiqiang made the mistake of referring to President Xi Jinping as a “clown.” He ended up being charged and convicted of corruption before getting sentenced to 18 years in prison.
You’re always operating with one eye looking over your shoulder. That may have been what kept Alibaba from seeing the competition coming.
Juggling Too Many Plates
Alibaba has its fingers in a lot of pies. It has replicated the Amazon (NASDAQ:AMZN) recipe of offering logistics services, local consumer services, digital media and entertainment.
There is also Alibaba Health, an on and offline healthcare products and services business; Alibaba Cloud, its cloud computing division; and Global Digital Commerce, where it operates marketplaces like Lazada and Aliexpress in various international markets.
These far-flung businesses require a lot of time and attention that Alibaba apparently couldn’t spare. Its primary e-commerce operations fell behind PDD Holdings (NASDAQ:PDD), which runs Temu and Pinduoduo. PDD took from Alibaba the title of China’s most valuable online-retail company.
ByteDance‘s Douyin video platform is transforming into a viable e-commerce platform and is growing faster than either Alibaba or JD.com (NASDAQ:JD). Alibaba Cloud is the online retailer’s second biggest revenue source, but suffered outages at the end of 2022 that affected large swaths of the economy.
Alibaba attempted to spin off a number of its units into standalone businesses, but most of those ended up getting canceled. Most recently it scrapped its logistics business IPO due to unfavorable market conditions.
A New Direction
The e-commerce giant now has a new CEO, Eddie Wu, who will direct Alibaba’s focus back to its bread-and-butter operations. It is focusing on offering consumers low prices again and will use its market-leading position in artificial intelligence to improve offerings throughout all of its businesses.
It was this restructuring that Ma endorsed. He said it was important for Alibaba stock for the company to admit the mistakes it had made in the past, but to also move past them for the future.
“This year, amid the many doubts and pressures on the company internally and externally, I saw the birth of a strong and brave Alibaba team,” Ma wrote to company employees.
Those doubts and pressures still exist. Admitting there is a problem is only the first step towards redemption. Alibaba still needs to pull it off. Until it shows concrete results, investors should not full embrace the retailer’s stock.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.