Alibaba’s 80% loss may stem from competition concerns

(Bloomberg) — Investors are looking for an end to the freefall in shares of Chinese e-commerce company Alibaba Group Holding Ltd. could be a long wait, if options traders are right.

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The stock’s nearly 80% drop from its all-time high in 2020 has pushed its valuation to an all-time low and brought its market cap on par with that of upstart rival PDD Holdings Inc. The derivatives market is signaling further pain, with options skew showing increased bearishness ahead of Alibaba’s earnings report due on Wednesday. A put contract betting that shares will fall 14% by the end of April was the most traded in Hong Kong on Monday.

Alibaba’s revenue for the three months through December is expected to have risen 5.6% from a year ago, the slowest growth in three quarters amid tough economic conditions and deep discounting. Earnings estimates for the company have fallen about 4% over the past month.

China’s online retail market has become crowded, with stalwarts Alibaba and JD.com Inc. face new entrants, including Douyin Mall, run by TikTok owner ByteDance Ltd. At the same time, persistent deflationary pressures and falling wages have led to a price war continually won by discounters such as Pinduoduo, the local equivalent of PDD’s Temu.

“The focus is on whether Alibaba can survive the macro weakness,” said Tam Tsz-Wang, analyst at DBS Vickers Hong Kong Ltd. “The market expects to lose market share as they face stiff competition from rivals such as Douyin and PDD. Another focus would be whether they are able to import new drivers to maintain their overall growth.”

The stock trades at 8 times forward earnings, near the low…

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