The stock should be benefiting from the company's data center drive against competitors Amazon and Microsoft, the massive success of its Singles' Day on Nov. 11, its market-beating fiscal second-quarter earnings, and the possibility of big gains from affiliate Ant Financial's expected initial public offering.
So what is going on with Alibaba's stock?
Rising short interest is likely the result of several negative trends including a Securities and Exchange Commission probe into Alibaba's accounting practices, concerns over a slowdown in a few metrics, and worries that Chinese economic problems will eventually hurt the company.
Alibaba's $233.53 billion market value is in question because of uncertainty surrounding Chinese companies listed in the U.S. Until recently, Alibaba was considered one of the best growth stories, but that is no longer the case.
Every positive data point suggested by Alibaba has come under suspicion. When Alibaba recorded more than $17 billion in gross merchandise value for its 24-hour Singles' Day event, that figure was scrutinized.
This year's 32% jump actually fades by contrast to last year's 60% upswing. Also, the $17.8 billion record fell shy of analysts' forecasts in the range of the $20 billion mark.
Meanwhile, when Alibaba reported fiscal second-quarter results, more concerns emerged.
Earnings of 79 cents a share beat consensus by 10 cents a share, and its revenue of $5.14 billion, was up 55% from a year earlier and beat analysts' forecast by more than $100 million.
The number of annual active buyers on Alibaba's China retail marketplaces in the second quarter grew 5 million from the 12-month period ended in June.
Compare that with the fiscal first quarter when Alibaba said that this figure had grown by 11 million.
Also, mobile monthly active users increased just 5% in the second quarter from a year earlier.
Additionally, margins narrowed, despite the 55% jump in sales.
Alibaba's biggest problem is clearly the SEC probe into accounting practices.
A New York Post article referred to at least one insider assisting in the probe.
That whistle-blower alleges billions in accounting irregularities at Alibaba.
Apart from complexities regarding bookkeeping, Alibaba's other negatives include a decelerating Chinese economy, the failure to expand quickly overseas, snowballing competition and the cost of absorbing new acquisitions.
Finally, another concern for Alibaba is growing competition in cloud computing.
Alibaba's plan to launch four data centers across the globe in the rapidly expanding cloud market is a smart strategy. Cloud computing revenue at the company was a meager $224 million in the fiscal second quarter, though that was up 130% from a year earlier.
There is a growing realization that ecommerce will command less attention, and cloud computing will instead offer growth opportunities.
This may not be easy for Alibaba, despite the fact that it hosts and provides security products and services for more than 35% of all the websites in China.
The global market, however, which is dominated by Amazon and Microsoft, is very different. These are difficult days for Alibaba, and investors should avoid the stock.
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