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Alibaba Stock: BABA Stock Cools, but July’s Loss Likely to Prove a Blip

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Alibaba (NYSE:BABA) closed on Wednesday at $166.93, slipping 1.11% on the day. That continues a downward trend for the past week, but investors shouldn’t be overly concerned.

Alibaba BABA

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Since the start of June and into early July, Alibaba stock has been recovering from a miserable May. Even with yesterday’s loss, BABA stock price is up nearly 11% compared to where it was May 31.

There are more positives to look forward to over the next month or so, including an earnings report in August that’s expected to deliver good news for Alibaba investors.

May Was a Wretched Month for Alibaba Stock

After starting the month with modest growth, BABA stock slipped over the past week. Wednesday’s 1.11% slide contributed to an overall drop nearing 5% compared to the $175.45 Alibaba stock closed at on July 2. 

However, this has been a minor setback compared to the 21% plunge investors faced through the month of May.

At that point, tensions between the U.S. and China had escalated. The trade war between the countries was threatening to heat up with new rounds of tariffs. Online commerce is Alibaba’s core business, and the fear that a full-blown trade war would hurt economic growth in China — and therefore impact spending by Chinese consumers — was a big concern. Nervous investors dumped BABA stock.

Adding to the situation in May was fallout from the Verizon (NYSE:VZ) and Yahoo deal. On May 15, the fund created to hold Yahoo’s Alibaba stock announced it would begin selling off those shares on May 20. The prospect of a flood of shares hitting the market only added to the BABA stock price downward spiral that month. 

Positives for Alibaba Stock and Investors

While several factors combined to hit Alibaba stock hard in May — knocking it back 21% in the month — investors have seen more positives in the company since then and there should be more good news on the horizon.

Midway through June, BABA stock got a boost following confirmation the company was filing for a listing on the Hong Kong stock market. The move will allow mainland Chinese investors to buy shares in the company, and it’s expected it could put $20 billion in the company’s coffers. Not quite as spectacular as Alibaba’s record setting $25 billion IPO on the New York Stock Exchange, but enough to inspire investor confidence.

In addition, the company will report earnings in August and it is expected that there will be positive news for investors. When the company last reported earnings in March, revenue was up 52% year-over-year, with both revenue and EPS significantly exceeding analyst expectations. In addition, the company’s cloud computing unit saw 76% growth on the quarter and grew its share of the Asian market — while Amazon’s (NYSE:BABA) AWS lost ground in the region.

Last August, Alibaba caught analysts off guard with a mixed earnings report that included 61% growth in revenue, but an earnings miss. As a result Alibaba stock dropped over 2%. This time around (BABA is expected to report earnings on August 22), analysts are looking for big revenue growth, continued strength in that cloud computing business and $1.13 EPS, compared to the $0.66 EPS the company delivered last August.

So long as Alibaba hits those numbers in August and there are no sudden escalations in the trade war between the U.S. and China, there’s a good chance that the BABA stock slide of the past week will turn out to be a blip. And Alibaba stock will continue to climb back toward the year-high $195 level it hit at the end of May.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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