Alibaba (NYSE:WOMANEquities are now under pressure in several ways. Some of these threats are less serious than others.
While I believe resuming de-listing threats is a secondary consideration, tThe more serious threats are within the country and are much more powerful. As a result, BABA shares now look cheap, but a quick recovery is unlikely to be inevitable.
I’m firm with mine InvestorPlace colleague Wayne Duggan believes the NYSE’s delisting from Alibaba just won’t happen…
He pointed to the idea that Alibaba is not as politically divisive as it is. President Biden is working to re-establish ties with China, so Chinese accounting standards are likely to be next on the list of concerns.
His other arguments are that delisting will not be easy and costly. In the end, Alibaba is likely to give up to some extent for the sake of business. These are all fair points.
A Closer Look at BABA Stock
I would like to add two more points here about why the threats of de-listing are too exaggerated. First, delisting on a major exchange does not prevent Alibaba from trading US stocks. Delisting BABA on the New York Stock Exchange and making big profits from the exchange.
This loss of earnings will, of course, increase if Chinese companies are delisted en masse by the Nasdaq and NYSE.
The rhetoric may inspire some, but the reality of losing money will inspire far fewer people to see it through. In truth, in the unlikely event of a massive exclusion of Chinese companies from listing, they could list in the OTC markets. So from a practical point of view, this step has little incentive.
Secondly, the grounds for such checks are exaggerated. Of course, there are bad apples among Chinese companies. Companies like Luckin coffee (OTCMKTS:LKNCY) who seriously violate ethical business practices are justly deserving of punishment.
On the other hand, large companies like Alibaba are far less likely to violate ethical standards on a massive scale. I agree that an audit is necessary, but I believe that Chinese business will grow about the same as other companies.
There is a bigger persistent problem that is more pressing: the Chinese government is taking harsh action against Alibaba over fears of the company’s anticompetitive behavior.
Since late last year, CCP has continued to target Alibaba and the financial subsidiary Ant Group.
Alibaba now faces more than $ 975 million in fines related to anti-competition charges. One such example is the practice of sellers selling on both Alibaba and JD.com (NASDAQ:JD) had to choose one or the other.
The company is facing pressure to comply with political agendas after founder Jack Ma criticized elements of the Chinese system. The Chinese government has taken a preference for Alibaba, but that seems to be a thing of the past.
In addition, Alibaba faces challenges that go beyond allegations of anti-competitive behavior. China does not want to hurt its domestic e-commerce success story and does not want to alienate it from international and domestic investors.
These problems have a stronger impact on BABA stock quotes than concerns about the exclusion of the US stock exchange from the listing.
The truth is that all this mess is opening up opportunities for companies like JD.com (which already has higher revenues than Alibaba) and Pinduoduo (NASDAQ:PDD) to gain market share on Alibaba.
While JD.com and Pinduoduo’s $ 132 billion and $ 176 billion market cap makes them much smaller, they are growing. Alibaba’s market cap is currently $ 630 billion, down $ 165 billion in the fourth quarter of 2020.
Alibaba’s revenue in 2020 was nearly $ 72 billion. Analysts expect revenues to grow 39% this year. Pinduoduo earned $ 9.118 billion, JD.com $ 114.3 billion.
In addition to the problems in the US, Alibaba faces significant challenges from its own government and domestic competitors. The delisting problems are relatively minor and rather of a secondary nature. I don’t think it’s worth buying Alibaba right now.
As of the date of publication, Alex Sirois did not have (directly or indirectly) any positions in the securities mentioned in this article.