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When to Dump Alibaba Group Holding Ltd (BABA)’s Stock

Two managerial decisions that will signal that time to dump Alibaba Group Holding Ltd (NYSE:BABA) has come are more budget for R&D and expansion in the US market. On Bloomberg, contributing editor, Paul Kedrosky and Stanford’s Charles Lee shed light on pitfalls for the newly IPOed e-commerce giant. 1

With about $22 billion in cash from its recent IPO, Alibaba Group Holding Ltd (NYSE:BABA) is looking to invest this money to shoulder the company’s growth. Jack Ma, executive chairman of Alibaba Group Holding Ltd (NYSE:BABA) should not  let the success of the company’s IPO get to his head and remain focused on the company’s growth model. Acquisitions is the only way to grow and go forward for the Chinese e-commerce giant, according to Kedrosky.

Any ambitious attempts of management such as spending more money on R&D instead of acquisitions will only result in one thing. Sinking of Alibaba Group Holding Ltd (NYSE:BABA)’s ship. Kedrosky was very clear about this when he was asked whether Alibaba Group Holding Ltd (NYSE:BABA) will spend more money on R&D.

“[…] Not only do I think they are not going to spend more money than I think if they did it would be a huge, you know, clanging warning sign. It’s not the way they grew the business, it’s not where the competency of the company’s executives are. I think they will continue to grow through acquisitions, not through organic growth […],” said Kedrosky.

The other managerial decision that could put buoyancy of Alibaba Group Holding Ltd (NYSE:BABA)’s ship in jeopardy is the decision to expand in the US market. Kedrosky pointed out that Alibaba Group Holding Ltd (NYSE:BABA)’s products do not fit in well in the US market as compared to the e-commerce giants already operating in Uncle Sam. The success of Alibaba Group Holding Ltd (NYSE:BABA) has been based on support from the Chinese government and absence of competition back home.

It would do Alibaba Group Holding Ltd (NYSE:BABA) good to realise its weak points and tread carefully when it comes to investing the cash piles that the company have just been trusted with.

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