Alibaba shares are cheapest ever as crackdown wipes off US$526 billion

ALIBABA Group Holding's US-listed shares have never been this cheap - and yet investors keep bailing.

On a reported earnings basis, Alibaba's American depositary receipts (ADRs) trade at a multiple of 18.7. That is the lowest since its 2014 debut, and the widest discount to the Nasdaq 100 Index's average multiple on record. The ADRs slumped 4 per cent on Wednesday (Dec 1) to a level not seen since May 2017. Its Hong Kong shares closed 2.5 per cent lower on Thursday.

A rout that has wiped US$526 billion in value in 13 months is deepening amid concern over the company's outlook. Some of Alibaba's biggest growth drivers - fintech, data, online advertising and content - are under scrutiny from regulators in Beijing. The company missed estimates for quarterly sales at its latest earnings update last month and predicted slowing revenue growth for 2022.

There is also uncertainty over the future of tech companies such as Alibaba that used variable interest entities (VIEs) to get around foreign ownership rules and list overseas.

China is planning to ban companies from going public on foreign stock markets through VIEs, people familiar with the matter said. The China Securities Regulatory Commission said on its website on Wednesday that a media report about banning the overseas listings of companies using the VIE structure is not true, without giving further details.

Those betting the shares are too cheap and ripe for a turnaround keep getting steamrolled. Derivatives traders who had bought bullish Alibaba options capitulated on their bets this week, selling thousands of December calls at steep losses. A bearish put expiring in just over 2 weeks is by far the most owned contract. Its US$20 strike price implies an 84 per cent drop from Wednesday's close.

Wall Street analysts are scrambling to keep pace with the declines in the ADRs. While they are overwhelmingly bullish - with 56 buy recommendations to one sell - the average price target for the firm has fallen for 18 straight weeks. BLOOMBERG