More Alibaba Headwinds Could Be Coming

Among all the stocks hit by the concerns around China, Alibaba Group Holding Ltd BABA is one of the most affected. Over the past few months, there has been a significant reduction in the company's market value and its share price continues to drop down. On Friday, the stock closed at $64.63, quite close to its 52-week low of $58.

Since the beginning of September, Alibaba's shares have lost nearly 3% in their market value. In comparison, the S&P 500 lost only around 1%, and the Dow Jones Industrial Average Index lost 1.20% of its value.

Year-to-date, the stock has seen a drop of over 38%. China, which is the most important market for the company, has dominated Alibaba's investor sentiment in recent times. A slowdown in the Chinese economy is likely to have an adverse impact on Alibaba's performance in the near term.

According to the company's own admission, the situation is expected to hurt its GMV (Gross Merchandise Value) for Q2 of fiscal 2016. GMV, or the total value of transactions made on Alibaba, is the most crucial metric for gauging the company's performance. At a recent conference in New York, Jane Penner, Head of Investor Relations at Alibaba, said while there was still willingness among the consumers to spend, the company has been witnessing "negative impact of the magnitude of the spending".

When compared to the original estimates for the quarter ending in September, the company expects GMV to be "mid-single digits lower." In August 2015, Alibaba's reported GMV growth of 34 percent (for the three months from June) to 673 billion yuan ($106 billion) was the slowest in over the past three years.

From a long-term perspective, most analysts are bullish about the stock. In a TipRanks poll of 21 analysts who have rated Alibaba within the past three months, 19 analysts have rated the stock as a buy and only 2 have recommended to hold the stock. However, given the uncertainty, a lot of the analysts have reduced their stock price targets for the company. And a lot of this negative sentiment is attributed to the problems in China.

On the positive side, recently, Alibaba added Metro Group, a leading German retailer, onto Tmall.com, one of its leading global shopping platforms. This is the first online venture of the Metro Group, which already operates more than 80 retail stores in China.

Alibaba had listed on the New York Stock Exchange in September 2014, in what was one of the largest share offerings in the world. However, given the concerns around its own margins and deceleration in China, the company is trading lower than its IPO price of $68.

J.P Morgan analyst Doug Anmuth recently reiterated an Overweight rating on Alibaba with a $93 price target, citing his confidence in the company's mobile monetization.

On average, Doug Anmuth has a 63% success rate recommending stocks and a +21.5% average return per recommendation when measured over a one-year horizon and no benchmark.