80% of Alibaba’s loss may hinge on competition concerns

(Bloomberg) — If options traders are right, investors looking for an end to a sharp slide in shares of Chinese e-commerce company Alibaba Group Holding Ltd. may have to wait a long time.

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The stock’s nearly 80% decline from 2020 record highs has pushed its valuation to an all-time low and put its market capitalization on par with upstart rival PDD Holdings Inc. The derivatives market signals pain ahead, with options skew showing increasing bearish. Ahead of Alibaba’s earnings report on Wednesday. A put contract betting on a 14% decline in the stock by the end of April became the most traded in Hong Kong on Monday.

Alibaba’s revenue for the three months to December is expected to rise 5.6% from a year earlier, the slowest growth in three quarters amid tough economic conditions and heavy discounting. The company’s forward earnings estimates have fallen nearly 4% over the past month.

China’s online retail market has grown crowded, with giants Alibaba and JD.com Inc facing off against new entrants including Douyin Mall, operated by TikTok owner ByteDance Ltd. At the same time, persistent deflationary pressures and declining wages have led to a price war that is ongoing. Won by discounters like Pinduoduo, PDD’s Temu’s local counterpart.

“The focus is on whether Alibaba can avoid broader weakness,” said DBS Vickers Hong Kong Ltd. analyst Tam Tsze-wang. “The market expects it to lose market share as they face tough competition from rivals like Douyin and PDD.” The second focus will be on whether they are able to import new drivers to sustain their overall growth.

The stock is trading at 8x forward earnings, which is close to the lowest valuation ever and making it one of the cheapest technology stocks in China. In comparison, Hong…

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