Why Alibaba Stock Crashed 11% Today - Motley Fool

What happened

Shares of Alibaba Group (NYSE:BABA) plunged 10.9% as of 11:25 a.m. EST on Thursday, after the Chinese tech giant reported misses on both the top and bottom lines for its fiscal second quarter 2022.

Analysts had forecast Alibaba would earn $1.93 per share pro forma on sales of more than $32 billion for the quarter. Instead, Alibaba reported a profit of just $1.74, and sales of only $31.15 billion.  

Image source: Getty Images.

So what

The news wasn't all bad. Although revenue missed estimates, it was still up an impressive 29% year over year, and the company noted that "global annual active consumers across the Alibaba Ecosystem" grew by 62 million -- up 5% -- with half that growth coming from outside China.  

Operating profit, on the other hand, grew much more slowly than sales, rising only 10%, and net profit simply collapsed. When calculated according to generally accepted accounting principles (GAAP), diluted net income per American depositary share slumped 81% to just $0.31. Non-GAAP (adjusted) or pro forma profit -- the number that Alibaba and the analysts both emphasized -- declined 38% to the aforementioned $1.74 per share.

Now what

Granted, Alibaba explained that its profit slump was "mainly due to ... increased investments in key strategic areas" -- but a drop is still a drop, and those investments are the things that Alibaba is depending upon to drive its growth in the future. (In other words, it would be unfair to give Alibaba credit for growth without dinging the company for the costs it incurs to create that growth.)

Of greater concern is the fact that Alibaba's investments in growth don't appear to be paying off as planned. Up until today's report, analysts had been forecasting that Alibaba would grow its sales 28% this year, but today Alibaba revealed that fiscal year 2022 revenue will in fact grow only between 20% and 23%.  

Long story short, Alibaba missed on earnings today -- and it's probably going to keep missing all year long.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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