Key Takeaways
- Alibaba’s US-listed shares fell 2.5% on Thursday after China’s market regulator called in the company and its e-commerce rivals over product quality and consumer protection.
- The regulator called for tighter product-quality standards but announced no penalties, and UOB Kay Hian’s Steven Leung said the earnings impact of these rounds has diminished, with the effect now mainly on sentiment.
- Alibaba trades at 13x forward earnings, against a 10-year average of 20x.
- Consensus expects normalized EPS to rise about 66% in fiscal 2027, and the September-quarter report is the next check on that rebound.
Alibaba (BABA) shares fell 2.5% on Thursday after Chinese regulators called in the company and its biggest e-commerce rivals for another talk about product quality.
Overnight in Hong Kong, the stock had its steepest drop in two months. One analyst there summed up the mood:
“Such ‘reminder’ on quality is not new to the sector, but it feels like never ending,” Steven Leung, executive director at UOB Kay Hian, told Bloomberg.
Fair enough.
What exactly happened
China’s State Administration for Market Regulation said it recently held a special symposium in Beijing on the quality of products and services sold by Alibaba, JD.com (JD), PDD Holdings (PDD), ByteDance’s Douyin, Kuaishou (1024.HK)and others.
The regulator said the platforms had taken steps to follow the guidance it issued last year. But it still sees quality and safety risks, especially in livestreaming e-commerce and quick retail. It called for tighter product-quality standards and stronger consumer protection, but didn’t announce any new measures.
The rest of the market didn’t help. The Hang Seng Tech Index fell as much as 4.7%, its biggest intraday drop since July, and it’s down 31% this year. Plus, Thursday was the deadline for wealthy Chinese families to settle taxes on offshore trusts, and some market participants have tied recent stake sales in Hong Kong to it.
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Same warning, smaller hit
Leung also said the damage to earnings from these rounds has been shrinking, and that the damage now shows up mostly in sentiment.
You can see that in Alibaba’s valuation. The stock traded at 13x forward earnings at Wednesday’s close, and Thursday’s drop takes it a little lower…
…which is far below its 10-year average of 20x and a long way from the 36x it reached in late 2017. (It bottomed at 7.6x in January 2024.)
Analysts aren’t expecting another big hit to earnings, either. Normalized EPS fell by more than half in fiscal 2026 (the year to March) as Alibaba spent heavily on quick commerce and AI, and it burned RMB 44.7 billion of free cash flow in the June quarter. Even so, consensus expects EPS to rise about 66% in fiscal 2027 and get back near fiscal 2024’s level in fiscal 2028:
The meeting ended without any new measures, so I don’t see a reason for big cuts to those estimates.
The discount sticks around
My personal opinion is that Thursday’s selloff looks like a hit to sentiment that Alibaba’s numbers don’t back up. At 13x forward earnings, with consensus expecting a big rebound in profits, a lot of bad news is already priced in. The catch is that Beijing’s warnings keep coming, and they aren’t the only weight on the stock: competition, the cash burn and doubts about whether the AI spending will pay off are all still there.
Of course, a future round could come with real measures attached. Alibaba’s September-quarter report, likely in November, will show whether the earnings rebound is on track.
So what is Alibaba stock actually worth?
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Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
