Alibaba Group Holdings Ltd (NYSE: BABA), the Chinese e-commerce behemoth, sent shockwaves through the market after its share price plummeted 6% on Tuesday. This sharp decline follows the company’s fiscal fourth-quarter earnings report, which revealed a significant drop in profits despite exceeding revenue expectations.
While Alibaba raked in 221.87 billion yuan ($30.73 billion) in revenue, a respectable 7% year-over-year growth, its net profit nosedived a staggering 86% to a mere 3.3 billion yuan ($453 million) compared to the same period last year. This dramatic profit plunge can be attributed to a net loss from Alibaba’s investments in publicly traded companies, starkly contrasting the net gain recorded in the same period last year. These investments experienced significant mark-to-market changes during the quarter, highlighting the potential volatility of financial markets.
However, there’s a silver lining. Alibaba reported encouraging growth in its customer base and cloud computing revenue, particularly related to its AI products. This strategic shift towards artificial intelligence suggests Alibaba may be future-proofing its business model in a rapidly evolving technological landscape. With questions about Alibaba’s profitability and long-term strategy, investors will be closely watching the company’s next move as it navigates the choppy waters of the global market.
Technical
Alibaba has recently experienced a notable shift in its price action dynamics, indicative of changing market sentiment. A significant uptrend emerged after a period of subdued trading within a descending channel pattern, where the share price languished below the 100-day moving average.
Support emerged at the $68.36 per share level, coinciding with the channel’s lower boundary, prompting a bullish breakout. The breach above both the descending channel pattern and the 100-day moving average signalled the ascendancy of bullish forces in the market. However, resistance materialised amid overbought RSI conditions as the share price approached the $85.00 per share level.
The recent downturn in Alibaba’s share price was exacerbated by the company’s earnings results, which fell short of market expectations. As a result, the share price retraced to the 38.20% Fibonacci Retracement level. If bearish pressures persist, traders could eye the 50% level as a potential point of interest on the downside. Conversely, if buyers regain confidence in the stock, the $85.00 per share resistance level could become a focal point of interest on the upside.
Summary
Alibaba’s recent profit plunge amid revenue growth underscores challenges in its investment portfolio, yet promising AI-driven growth offers hope. Technical analysis reveals a bullish breakout but with resistance at $85.00. Traders likely watch for support at $68.36 and potential downside to the 50% Fibonacci level.
Sources: Alibaba Group Holdings Ltd, Reuters, CNBC, Dow Jones Newswires, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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