Alibaba stock suffering record drop after antitrust probe in China

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Shares of Alibaba Group Holding Ltd. tumbled Thursday toward the lowest close in nearly six months, after Chinese regulators launched an antitrust investigation into the e-commerce giant.

A focus of the investigation was Alibaba’s policy of “choose one of two,” which requires Alibaba’s business partners to avoid dealing with competitors, as the Associated Press reported.

“[W]e are not surprised by the announcement of the investigation,” wrote analyst Aaron Kessler at Raymond James, in a note to clients. “We believe the most likely outcome is the termination of these exclusive relationships, though it is difficult to quantify the potential revenue impact (e.g. consumers shifting buying to other platforms).”

Kessler reiterated the strong buy rating he’s had on Alibaba since at least February 2018.

Alibaba shares
BABA,
-15.46%

plunged 13.8% in morning trading, and was headed for the lowest close since July 1. The shares are set up to suffer the biggest one-day decline since going public in September 2014, as the current record drop is 8.8% on Jan. 29, 2015.

Don’t miss: Alibaba shares post worst day since 2015 after Ant Group IPO is suspended.

With the selloff, the stock has crossed over into bear-market territory, which many on Wall Start mark as a decline of 20% or more from a significant peak. The stock was currently 30.4% below its record close.

Since closing at a record $317.14 on Oct. 27, the stock closed down as much as 19.6% at $255.11 on Dec. 15, before paring some losses to close Wednesday at $256.18. A close at or below $253.71 would make the bear market “official.”

Kessler said he believes that given the stock’s sharp decline from its record high, investors are already “largely pricing in” the concerns about an investigation. As a result, “we remain buyers” of Alibaba’s stock at current levels, he said.

Kessler has a $330 price target on Alibaba’s stock, which is 49.5% above current levels.

The stock has shed 18.2% over the past three months, while the iShares MSCI China exchange-traded fund
MCHI,
-2.99%

 has gained 8.2% and the S&P 500 index
SPX,
+0.20%

 has gained 13.9%.



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