Alibaba (NYSE: BABA) shares have weakened more than 12% from mid-February 2021, and the current share price stands around $240.
Fundamental analysis: Alibaba faces problems with Chinese regulatorsAlibaba continues to dominate the Chinese e-commerce market, and according to analysts, it can maintain its dominant market position. China’s e-commerce market will continue to grow at a rate of more than 30% during the next several years, and this will only solidify the position of Alibaba further.
After a correction of more than 12% since the mid of February, Alibaba has caught lots of investors’ attention. Alibaba reported FQ3 results in February; total revenue has increased by 37% Y/Y to $33.88B while FQ3 NON-GAAP EPS was $3.38 (beats by $0.13).
This revenue growth was mostly driven by the growth of its retail commerce businesses in China, while the cloud segment became profitable for the first time. It is important to say that mobile MAUs reached 902 million in December 2020, representing an increase of 21 million over September 2020.
“We delivered another solid quarter, with revenue growth of 37% year-over-year and adjusted EBITDA up 22% year-over-year, while our strong free cash flow enabled us to further invest in strategic areas. We are pleased that our Alibaba Cloud business achieved positive adjusted EBITA during the quarter, and Cainiao Network was operating cash flow positive,” said CFO Maggie Wu.
Alibaba reported that it expects a further increase in revenues for the 2021 fiscal year, while the EPS growth should be consistent with long-term objectives. Despite this, some analysts say that there are some obvious risks when it comes to investing in Alibaba shares.
Alibaba faces problems with Chinese regulators, which could force this company to divest businesses not related to the core e-commerce operations. Wall Street Journal reported that if the company distances itself from former chairman Jack Ma, regulators would probably not be so strict.
Regulators could punish Alibaba with an antitrust fine; still, they are more interested in cracking down hard on Jack Ma and fintech Ant Group, which is seen as disruptive to China’s financial industry.
Technical analysis: $250 represents the first resistance levelAlibaba shares have weakened more than 12% from mid-February 2021 based on worries about Ant Group and due to pressure on the tech industry.
Data source: tradingview.com For traders that can live with the risks and the China exposure, Alibaba shares could be a very good short-term investment at the current price. If the price jumps above $250, it would be a signal to buy Alibaba shares, and the next target could be around $260, but if the price falls below the $220 support level, it would be a firm “sell” signal.
SummaryAlibaba shares have weakened from $274 below $230 since the mid of February, and the current price stands around $240. Alibaba continued to dominate the Chinese e-commerce market, and the company delivered another solid quarter, with revenue growth of 37% year-over-year. For traders that can live with the risks and the China exposure, Alibaba shares could be a very good short-term investment at the current price.
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