Alibaba's $100 Billion Rout Deepens as Food-Delivery Turf War Escalates

Alibaba's market value has declined by $100 billion due to a turf war in China's food-delivery market. Shares have plunged 28% from a March high, with rivals JD.com and Meituan also experiencing significant losses. At least four brokers have cut their price targets, and analysts predict the battle could last longer than expected. Alibaba's food-delivery strategy has distracted investors from its AI boom, and the company has burned about $4 billion on discounts in the June quarter alone.

Alibaba Group Holding Limited (BABA) has seen its market value decline by $100 billion, with shares plummeting 28% from their March high. This significant drop is attributed to a turf war in China's food delivery market, where Alibaba's rivals JD.com and Meituan have also experienced notable losses. The intense competition has led to at least four brokers cutting their price targets, and analysts predict that the battle may extend beyond the immediate horizon [1].

JD.com, in particular, has been aggressive in its expansion, announcing a $1.4 billion program to bolster its food delivery business, JD Delivery. This move underscores JD.com's goal to become the primary platform for reputable brands, challenging Alibaba's Taobao Instant Commerce and Meituan's dominance [1]. The aggressive investment strategy, while common in China, may not be viewed favorably by the government, which has historically been cautious about excess capacity in consumer-oriented services [1].

Alibaba's recent food delivery strategy has diverted investor attention from its AI boom, a sector that has been a key driver of growth. The company has also been criticized for burning approximately $4 billion on discounts in the June quarter alone. This financial strain has raised concerns among investors and analysts [1].

Despite the challenges, Alibaba's recent financial performance remains robust. The company closed the most recent trading day at $107.99, marking a 1.62% increase from the previous session. This performance exceeded the S&P 500, which registered a 0.07% loss for the day. The upcoming earnings release will be closely watched, with analysts expecting earnings per share (EPS) of $2.48, representing a 9.73% increase from the prior-year quarter. The company is also expected to report revenue of $34.85 billion, a 4.13% increase year-over-year [2].

Valuation metrics suggest that Alibaba is trading at a Forward P/E ratio of 10.48, which is lower than the industry average of 25. The PEG ratio of 0.42 further indicates that Alibaba is undervalued compared to its peers in the Internet - Commerce industry, which has an average PEG ratio of 1.44 [2].

Investors should closely monitor Alibaba's earnings release and any adjustments to analyst estimates. The Zacks Rank system, which takes into account estimate revisions, currently rates Alibaba as a "Hold" (Zacks Rank #3). However, recent downward revisions in EPS estimates suggest that analysts are becoming more cautious about the company's near-term prospects [2].

In conclusion, Alibaba's market value decline is largely due to the intense competition in China's food delivery market. While the company faces significant challenges, its robust financial performance and undervalued valuation metrics offer some comfort to investors. The upcoming earnings release will be crucial in determining the company's future trajectory.

References:
[1] https://sherwood.news/markets/alibaba-slumps-after-rival-jd-com-starts-usd1-4-billion-program-to-boost-its/
[2] https://finance.yahoo.com/news/alibaba-baba-rises-market-takes-214503989.html