The Alibaba bubble has always been a possibility along the lines of America’s dot-com failures. These happened as we entered the new millennium to ecstatic celebrations around the world. All it took to prick THAT bubble was a shift in confidence causing spectacular stock losses, for example eBay’s plummeting from $107 to $7 per share
Alibaba has been THE success story on the ecommerce front of China, and had little difficulty raising $25 billion from investors keen to share the spoils last year. At the time, founder Jack Ma commented the Chinese e-commerce company faced the danger of high expectations. He might be right. The market is over-inflated. But is there an Alibaba bubble lurking?
Alibaba Bubble: The Warning Signs
Decelerating growth accompanied by over-ambitious expectations is the catalyst that makes dot.com bubbles burst. Chairman Ma has yet to gain a grip in America and Europe. Baba New York stock has been tumbling since a peak in November 2014. It had yet another hiccup on Monday, after the parent company of luxury brands Gucci and Yves Saint Laurent sued Alibaba for continuing to allow counterfeit sales.
Alibaba’s continuing dependence on Chinese markets to feed its insatiable appetite fuels further speculation of an Alibaba bubble developing. China’s city markets are showing signs of over trading. With the overall economy slowing, the biggest e-commerce trader in the second largest world economy could be facing a double whammy.
Is Alibaba facing a Credibility Crisis?
The Chinese government has already said so in the context of it failing to “crack down on shady merchants, fake goods and misleading promotions”. If it suspects there is an Alibaba bubble it far too shrewd to admit it. Alibaba is pinning hopes on emerging Chinese rural markets, while rivals Butauto, Tencent and JD.com Inc. have joined forces to take it on.
Likely Trends in Alibaba Stock Prices
I personally doubt Alibaba will collapse. It is just too big and somebody will bail it out if an Alibaba bubble begins to leak. Its stock values are likely to continue bleeding until the China government applies some Band-Aid. The American government did so after the 2000 – 2002 U.S. stock market crash. Investors who snapped up shares in companies like Cisco, Amazon and eBay at the time have cause to celebrate.