How Alibaba Deals with Troubled Times?

Information is not investment advice

The e-commerce giant has recently faced a lot of pressure, starting from global uncertainty in China amid lockdowns and geopolitics. The company has been added to the US SEC (Securities and Exchange Commission) delisting queue. Finally, there’s an earnings report coming on August 4. Let’s discuss everything and prepare for the next move.

Alibaba delisting meaning

Tensions between US and China began in 2018 when US President Trump decided to “make America great again” and started a trade war between the two countries. The dispute included tariffs and quotas on imports from China, which also responded with tariffs on US goods. That was the start of the conflict.

Source: Peterson Institute for International Economics

Years later, in February 2022, US president Biden extended tariffs on certain types of goods, including solar panels and cells. While Alibaba doesn’t produce these panels, the overall level of tension kept escalating until on July 29 the US SEC added Alibaba to a list of companies that may be delisted from the US exchange.

A few took in consideration the law issued in 2020 that provides the opportunity to delist the company from an exchange if it has a foreign jurisdiction. Another criterion is that a foreign company hasn’t issued the audit report. Combined, the US SEC has all the needed reasons to ban Alibaba. The company should submit the audit report by August 19, 2022. That’s not rocket science to understand the low likelihood of a peaceful solution to the conflict, especially amid growing Taiwan tensions.

Source: https://www.sec.gov/hfcaa

Alibaba’s US-listed shares extended their declines for the third week and have slumped 29% in July, closing the month below the $90.00 round number. The delisting analysis tells us the plunge in stock will continue. Let’s talk about the upcoming earnings report to grasp all. 

Alibaba earnings report and price forecast

Alibaba will release its earnings report on August 4, before the market opens. Analysts expect the EPS to be $1.52 with a revenue of $31.02 billion. In June, the company reported $1.93 per share with a revenue of $32.19. This time, the estimated decrease is low, and the company expects rather good results.

Source: CNN BUSINESS

The 47 analysts offering 12-month price forecasts for Alibaba Group Holding Ltd have a median target of 150.17, with a high estimate of 230.03 and a low estimate of 104.43. The median estimate represents a +66.15% increase from the last price of 90.37. However, I think most analysts aren't taking into consideration the most negative scenario which is a delisting and a bad economic outlook due to the Chinese lockdowns.

As for the chart, the stock is trying to hold above the demand zone (red), but the fourth touch of the area will likely lead to a breakout.

Alibaba daily chart

Resistance: 137.80, 183.00, 210.00

Support: 77.00, 55.00, 40.00

If disagreements between US and China continue, we’ll likely see a delisting of the stock, leading to a massive outflow of the capital from it and other Chinese stocks traded on US exchanges. This situation is rare, and my target for this movement is in the $40-55 support area.

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