Alibaba Group (BABA -0.29%) stock marked its fourth straight day of declines on Wednesday, falling another 2.6% through noon ET. That sounds bad, but actually, the stock's really down only about 5.5% since Thanksgiving Eve.
So not a huge loss, but still...why is a stock valued at less than 11 times earnings and only 8 times free cash flow falling at all?
Alibaba is shrinking
Yesterday, we took a look at Alibaba's announcement that it's closing down its quantum computing research business, boxing up its equipment, and donating it all to Zhejiang University rather than continue losing money on the project. Management has previously blamed "U.S. restrictions on export of advanced computing chips" for its inability to make sufficient progress in quantum computing and artificial intelligence to justify the expense.
Today, we learned that Alibaba is cutting its investments even more (albeit indirectly).
E-payments company Alipay, which according to S&P Global Market Intelligence is majority-owned by Ant Group -- but according to Ant's 2020 IPO prospectus is still 32.65% owned by Alibaba and may be taking marching orders from up top -- has decided to sell its 3.4% stake in Indian food delivery giant Zomato. Apparently, Reuters first reported this yesterday, about the same time the quantum computing news came out -- but to be honest, this is the first I'm hearing of it, via news aggregator TheFly.
Indirectly, therefore, Alibaba's ownership interest in Zomato is also getting sold.
Bad news could be good news for Alibaba stock
Is that really bad news for Alibaba, though? I mean, sure, on the one hand, Alipay selling Zomato means Alibaba won't participate in any future growth at Zomato. But Zomato has never earned a profit and therefore isn't currently contributing to Alibaba's bottom line. On the other hand, when Alipay collects the $400 million that it will reportedly be paid for its stake in Zomato, this money should immediately flow up the corporate ownership chain toward Alibaba, boosting the company's profits somewhat.
Admittedly, $400 million earned by a sub-subsidiary won't move the needle a whole lot for Alibaba, which earned $18.6 billion all on its own over the last 12 months. But anything's better than nothing -- and even "nothing" would be better than the losses Alibaba's been incurring from its Zomato investment up to this point.
Long story short, there's at least as much reason to view Alipay selling its Zomato stake as a positive for Alibaba as there is to see it as a negative. And if you ask me, this news doesn't make Alibaba stock any less cheap today than it was yesterday.
