Why Alibaba Stock Tumbled (Again) on Friday
What happened
Shares of Alibaba (NYSE: BABA) slumped again on Friday, by as much as 5.3%. At the close of trading, the stock was down 1.3%.
The catalyst that sent the tech titan lower was the latest read on the economy on China -- and the news was troubling.
So what
China's gross domestic product (GDP) expanded by just 0.4% year over year in the second quarter, its worst quarterly performance in more than two years. Furthermore, it was far worse than the 1% growth economists forecast, and sharply below the 4.8% increase it generated in the first quarter. This suggests that China is at risk of negative growth in the coming months, which could signal the beginning of a recession.
The country's economy recently ground nearly to a halt as China continued to grapple with the pandemic, resulting in government-mandated shutdowns in line with its "zero COVID" policy.
This was just one of several headwinds businesses have faced in China so far in 2022. A number of high-profile companies in the tech sector have been on the receiving end of a government crackdown, resulting in tougher regulations, including stricter data protection rules and tough new antitrust regulations.
Like the U.S., China has been battling rising inflation, and its unemployment remains near record highs. In June, the unemployment rate came in at 5.5%, a slight improvement over April and May. But conditions were even worse for younger workers, as the rate was 19.3% for job seekers between 16 and 24.
Now what
So what does this have to do with Alibaba? The company generates the vast majority of its revenue from its core e-commerce business, which is no doubt taking a hit from rising inflation and high unemployment -- both of which reduce overall consumer spending power.
The dour economic read comes on the heels of news that Alibaba was the target of a government investigation into a data breach that compromised the personal information of as a many as 1 billion Chinese consumers, after it was revealed that the data was stored on Alibaba's cloud.
Given the host of headwinds facing the company, investors might want to hold off on a position in Alibaba, at least for now.
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
