An investment in Alibaba (NYSE: BABA) stock at any time since its 2014 IPO would probably be in the red today. At the time, it was the largest-ever IPO, priced at $68, raising $21.8bn for the company and its investors. That was around eight years ago and only Saudi Aramco’s IPO has been larger since.
Despite being one of the most prominent Chinese technology names, investor sentiment and risk tolerance for Alibaba has faded dramatically. It’s been a volatile stock with an October 2020 high of $319 but today trades at around $72. So if I’d invested £10,000 in Alibaba stock five years ago, how much would my investment be worth today?
Not pretty
In dollar terms, Alibaba stock declined 59% over the last five years. Ouch! However, the pound has significantly weakened against the dollar in that time to increase the value of my hypothetical investment. Even with currency effects taken into account though, I’d only have £8,358.70 remaining of my £10,000 investment. I’d be down 16.41% after five years, excluding broker fees. Alibaba has never yielded a dividend that could have boosted my investment value. Below is a full breakdown.
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| METRICS | ALIBABA STOCK |
| Amount invested (23 October 2017) | £10,000 |
| Post-conversion to USD | $16,031 = roughly 90 shares |
| Stock growth over 5 years | – 59.40% |
| Total return USD | – $6,507.97 |
| Total return post conversion to GBP | – £1,641.30 |
The performance has been dismal. For context, an investment in the S&P 500 index would have returned 45% in the same period. That’s without taking into account currency fluctuations and dividend payouts. Despite Alibaba stock’s poor historic performance, should I invest in the Chinese multinational company today?
Do the fundamentals matter?
Alibaba is a company that has delivered revenue growth rates comparable to US tech giants Apple, Alphabet and Meta. Today, it looks cheap with a forward price-to-earnings ratio of just 9.28. It’s also China’s largest provider of public cloud services by revenue with plenty of room to grow. But its long-term performance could have very little to do with fundamentals and more to do with its numerous and complex challenges.
Firstly, Alibaba stock may be delisted from the New York Stock Exchange. Regulators from the US have long demanded complete access to audit working papers of New York-listed Chinese companies, including Alibaba. If this isn’t resolved, a delisting is a possibility. While this wouldn’t directly affect shareholders’ rights or claims on Alibaba, the holdings would be harder to sell and the share price could plummet.
Secondly, Alibaba’s revenue is being hampered by Beijing’s strict zero-Covid policy. In the second quarter of the year, Alibaba posted its first ever flat year-on-year quarterly revenue growth. There are no signs of this policy easing so future growth is very unpredictable.
Finally, China-US relations continue to worsen. The US government’s crackdown on chip exports to Chinese companies will have put further pressure on Alibaba’s growth. It’s hard to see these relations improving any time soon.
This unpredictability makes it incredibly difficult to value the company. Without these geopolitical and regulatory headwinds, Alibaba stock would look like a bargain. However, I don’t feel comfortable investing in it today. Contrarian investments can deliver great returns for brave investors, but for now, I’m sticking to safer investments elsewhere.
