Alibaba's Singles Day may have shattered records this year, but is it enough to soothe nervous investors?
The commerce giant's shopping extravaganza, which takes place yearly on Nov. 11 as an ode to "number one," netted more than $30 billion in sales within 24 hours. In a press release, Alibaba (BABA) reported that sales from the event were 27% higher than last year, and that by mid-afternoon China time, it was a "foregone conclusion" that this year would be the biggest Singles Day yet in terms of sales.
Alibaba's Singles Day has surpassed both Black Friday and Cyber Monday as the biggest single-day shopping event globally, anchored by the massive Chinese consumer market of about 1.4 billion people, and evolving in recent years to an international event. But the trade conflict between the U.S. and China continues to cloud the outlook for Alibaba investors, dragging down the stock this year. Alibaba shared are down 21% year to date, and further edged down about 1.4% on Monday in spite of the Singles Day sales results.
Alibaba executives are addressing the issue head-on. In the Singles Day press release, Alibaba's executive vice chairman Joe Tsai said: "I think you have to understand Alibaba and what Alibaba's doing in the context of the long-term secular trend that's developing in China, which is the rise of the Chinese middle class. That trend is not going to stop, trade war or no trade war."
That sentiment is shared by Alibaba founder and soon-to-retire CEO Jack Ma, who said at a conference in Shanghai last week that the "trade war is the most stupid thing in this world." As far as Alibaba's business is concerned, the Trump administration's tariffs on Chinese imports -- which are scheduled to rise from 10% to 25% in January 2019 -- are dampening Chinese consumer confidence and are expected to further drag down spending.
As such, many investors focused less on the total sales figure for Singles Day and zeroed in on the rate of sales growth compared to past years -- and came away less than reassured.
"Alibaba delivered on a record-setting Singles Day, but as we expected their year-over-year growth rate of 27% was muted in comparison to the previous two years at 39% and 32%," said Christian Magoon, CEO of Amplify ETFs. "Tariff fears, a slower housing and auto market combined with poor stock market performance has negatively impacted the Chinese consumer. We expected this environment to impact Singles Day, which it did."
Alibaba's stock isn't alone in struggling against an uncertain macroeconomic environment. Other Chinese giants such as Tencent (TCEHY) have seen their stock lose value as investors make sense of factors including tariffs as well as a weakened Chinese currency.
In its Nov. 1 earnings, Alibaba beat quarterly revenue estimates but trimmed its outlook for 2019 as a result of what CEO Daniel Zhang called "fluid macroeconomic conditions."
In the meantime, investors are well advised to stay vigilant for changing conditions affecting Chinese stocks, added Magoon.
"Going forward, Chinese-focused equities -- including BABA and other retail stocks -- are likely to be in a slower growth market until some or all macro clouds lift," Magoon said. "Perhaps the largest cloud -- a tariff war with the U.S. -- could lift with a tweet, so investors need to stay nimble."