Why Alibaba Stock Is Sinking Today

Shares of Alibaba (NYSE: BABA) are plunging on Thursday. The company's stock was down 7.9% as of 12:43 p.m. ET and fell as much as 8.3% earlier in the day. The steep decline comes as the S&P 500 (SNPINDEX: ^GSPC) edged up 0.3% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was up 0.1%.

The Chinese tech giant reported quarterly earnings that fell significantly short of Wall Street's expectations.

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Alibaba misses earnings targets

Alibaba reported weaker-than-expected results for the quarter ended March 31. Its net income of $1.71 million (12.38 billion Chinese yuan) was well below analysts' expected $2.93 billion. Revenue grew 7% year over year to $32.58 billion, also falling short.

Growth slowdown raises concerns

The 7% revenue growth rate is less than previous quarters, pointing to a deceleration and highlighting issues in Alibaba's core e-commerce business. The Chinese economy isn't recovering the way many investors had hoped, and consumer spending has not returned to levels analysts had forecast.

Image source: Getty Images.

Alibaba also faces increased competition from JD.com and Temu domestically, while AliExpress, Alibaba's international marketplace, is reeling from the U.S.-China trade tensions. AliExpress also faces competition from Temu and Shein, as well, of course, from Amazon.

The short term could be bumpy

While Alibaba faces significant challenges in the near term, the company is making significant investments in artificial intelligence (AI) and building for the future. Still, with a rocky domestic economy and international trade wars, the company's stock could struggle for some time. However, long term, I think Alibaba will succeed, and with a price-to-earnings ratio (P/E) a little over half of that of Amazon, its stock is attractively priced.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.