Why did Alibaba Group shares dropped

2022-01-19T15:08:30
Alibaba stocks
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Why did Alibaba Group shares dropped

 

Why did Alibaba Group shares dropped : The US government wonders: Does Alibaba’s cloud business represent a threat to the national security of the United States?

Evest follows Alibaba Group developments in the next report

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Alibaba Group stocks  dropped

The result

 

Alibaba Group stocks  dropped

Alibaba Group  stocks  fell 2.8% on Tuesday, after Reuters reported that the US government is investigating its cloud business ,
“to determine whether they pose a risk to the national security of the United States. 

The Biden administration’s investigations focus on concerns that the Chinese government may have access to the personal information of US customers of the Chinese e-commerce giant,
the news agency reported. 

 There were also corollary concerns about the integrity of intellectual property stored on the Alibaba Cloud,
and about Beijing’s ability to “disrupt US users’ access to their information stored on the Alibaba cloud. 

It is not clear exactly how much risk this investigation poses to Alibaba.

As Reuters notes, the company’s cloud business in the US is currently very small – only $50 million in annual revenue.

But the news agency notes that US regulators will likely take measures up to and including ,
banning US consumers and businesses from doing business with Alibaba altogether, if they conclude the risks are too high. 

The result

If that happens, not only will Alibaba lose its current revenue stream – it will lose any possibility to grow its cloud business in the US whatsoever.

This is a major concern today. Alibaba said its cloud business is the company’s second (of four) “growth pillars”.

That means it’s one of the business sectors the company relies on to prove to very conservative analysts’ predictions,
that it will grow earnings of less than 5% per year over the next five years (according to data from S&P Global Market Intelligence). 

Ruling out the chance that Alibaba will grow faster than expected,

Alibaba’s stock – despite dropping nearly 50% over the past year and selling at 17.5 times earnings – may not be as cheap as it sounds.

If Alibaba could increase its growth by 5%, its inventory could actually still cost a lot.

 

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