Alibaba Loses $100 Billion in Market Value Amid Food-Delivery War

Alibaba Group Holding Ltd. is facing a significant challenge in China’s food-delivery market, with a protracted battle resulting in a $100 billion loss in market value. This intense competition, often referred to as “involution,” has led to a 28% drop in Alibaba’s Hong Kong-listed shares from a March high through Thursday, nearly double the loss experienced by a gauge of Chinese tech peers. Rivals JD.com Inc. and Meituan have also seen similar declines amid ongoing government efforts to curb the destructive hyper-competition.

At least four brokers, including major financial institutions, have reduced their price targets by an average of 8% since late June as the turf war continues to escalate. Luo Jing, investment director at Value Partners Group Ltd., noted that the players in this battle are financially stronger than in previous rounds, with more cash and better cash flow positions, suggesting that the conflict could last longer than expected.

Alibaba’s strategy in the food-delivery sector has diverted investor attention from the DeepSeek-led AI boom that previously drove its shares up by more than 80% in just two months earlier this year. The company has merged its delivery unit into its core business and increased subsidies since JD.com’s entry into the market in February. This move has been costly, with estimates suggesting that about $4 billion has been spent on discounts in the June quarter alone by Alibaba, Meituan, and JD.com. Nomura Holdings Inc. predicts that Alibaba will continue to dictate the intensity and scale of the coupon war going forward.

Sector leader Meituan has announced an “attack” mode against Alibaba, while JD.com has introduced a new incentive scheme. These extreme measures have drawn criticism from the government over their potential disastrous impact on the industry, as well as warnings about driver health and food safety. Goldman Sachs estimates that Alibaba might sustain a loss of 41 billion yuan ($5.7 billion) in its food-delivery business for the 12 months through next June, equal to about a third of its net income for the fiscal year ended March.

HSBC analysts, including Charlene Liu, have noted that aggressive investment in food delivery and insta-shopping will significantly dampen Alibaba’s near-term earnings outlook. They have cut their price target for Alibaba by 15%. Despite these challenges, the consensus estimate for Alibaba’s 12-month forward earnings per share is down about 6% since early May. Analysts remain overwhelmingly bullish, with 44 buy ratings on the Hong Kong shares and no holds or sells. The stock also remains historically cheap at a price-to-earnings ratio of less than 11 times.

UOB Kay Hian Holdings Ltd. analyst Julia Pan notes that the government may step in to curb price competition if the market takes a heavy blow and margins get squeezed further. Alibaba’s current valuation is low enough to trigger some dip buying, she added. The stock climbed as much as 3.5% Friday amid a broad rally in Hong Kong. However, investors may remain cautious until a definitive end to the steep discounts, especially if they trigger more earnings downgrades and constrain investment in the all-important AI business.

Nicholas Chui, a Franklin Templeton portfolio manager, highlighted the need to watch for price competition that evolves into a situation where certain companies decide to gain market share at the expense of profitability. As a stock picker, he would avoid those stocks. The ongoing battle in the food-delivery market poses significant risks to Alibaba’s earnings and investor confidence, with no clear end in sight for the damage to profits.