Alibaba’s Rocky Road to Recovery
Alibaba, once a shining star in the e-commerce realm, stumbled into a downward spiral after a hefty antitrust fine of $2.75 billion from China’s regulators in 2021. The fine stripped Alibaba of its competitive defenses and prohibited it from engaging in exclusive deals, aggressive promotions, and major investments without government consent. This setback paved the way for fierce rivals like PDD Holdings and JD.com to tighten their grip on the market.
Furthermore, China’s enigmatic zero-COVID lockdowns and macroeconomic challenges only added fuel to the fire, pushing Alibaba into a state of sluggish growth. Its cloud business, a critical revenue generator, faced headwinds as major clients like TikTok shifted their data to Oracle’s cloud service in 2022.
Despite these obstacles, Alibaba is shifting focus to its international e-commerce ventures like Lazada, Trendyol, and AliExpress, and bolstering its Cainiao logistics arm to cater to a broader clientele base. Analysts project a modest 8% compound annual growth rate (CAGR) in revenue from fiscal 2023 to fiscal 2026 as the company finds stability in its Chinese operations. With a forward earnings multiple of just 11, Alibaba stands as a potential bargain for astute investors.
Peloton’s Uphill Battle
Peloton, synonymous with at-home fitness during the pandemic, took a severe blow as gyms reopened and cheaper competitors flooded the market. Despite diversifying its product line with connected treadmills and other offerings, Peloton saw its revenue plummet by 11% in fiscal 2022 and a staggering 22% in fiscal 2023.
As growth decelerated, Peloton implemented strategic shifts, including laying off staff, outsourcing production, and expanding sales channels through platforms like Amazon. The company also recalibrated its pricing strategy by reducing equipment costs while raising subscription fees to offset declining margins. These maneuvers have driven margin expansion and a gradual reduction in EBITDA losses, with analysts forecasting a positive turn in adjusted EBITDA by fiscal 2025.
That said, Peloton is anticipated to remain in the red under generally accepted accounting principles (GAAP) for the foreseeable future. While revenue upticks are on the horizon in fiscal 2025 and 2026, Peloton remains vulnerable due to its dwindling subscriber base and evolving competitive landscape.
The Verdict: Alibaba Emerges as the Main Contender
While both Alibaba and Peloton grapple with challenges on their road to recovery, Alibaba shines as the more resilient option for prospective investors. With a strategic pivot towards international markets and a conservative valuation based on forward earnings, Alibaba presents itself as a compelling bet in the realm of e-commerce and cloud computing.
In contrast, Peloton’s journey to rejuvenation demands a stabilizing of its core operations before it can be deemed a sound investment. Despite a favorable price-to-sales ratio, Peloton’s future remains uncertain, given its fragile subscriber base and ongoing profitability concerns.