Alibaba Downgraded by Morgan Stanley: Is This a War You Want to Fight?

$Alibaba(BABA)$ $BABA-W(09988)$

In a surprising move that sent ripples through global markets, Morgan Stanley this week downgraded Alibaba Group (NYSE: BABA), one of China’s most prominent tech titans. Once hailed as the symbol of Chinese innovation and e-commerce dominance, Alibaba now faces an uphill battle amid regulatory scrutiny, slowing growth, and shifting investor sentiment.

The downgrade raises a pivotal question for global investors: Is Alibaba still worth fighting for, or is it time to step back from the battlefield?

This article explores the factors behind the downgrade, the company’s current challenges, market sentiment, and what investors should consider before taking a side in this billion-dollar conflict.

Why Morgan Stanley Pulled the Trigger

Morgan Stanley, which for years maintained an Overweight rating on Alibaba, revised its stance to Equal-Weight, citing concerns over Alibaba’s ability to deliver sustainable growth in an increasingly competitive and regulated market.

In its note, the investment bank cited:

• Slower-than-expected recovery in China’s consumer spending.

• Heightened competition from rivals like Pinduoduo, JD.com, and Douyin (ByteDance).

• Continued regulatory uncertainty dampening profitability and investor confidence.

• Rising capital expenditure as Alibaba invests heavily in cloud computing and logistics infrastructure.

Analysts at Morgan Stanley lowered their 12-month price target on the stock to $74, implying only modest upside from its current levels — and well below its highs north of $300 seen just a few years ago.

The message was clear: Alibaba’s growth engine has stalled, and the path forward is clouded by both internal execution risks and external headwinds.

Alibaba’s Growth Challenges: Slowing Engines

Once considered the most compelling story in global e-commerce, Alibaba’s growth trajectory has slowed noticeably in recent years.

E-Commerce Saturation

China’s e-commerce market, once growing at double-digit annual rates, has matured. While Alibaba remains a market leader through its platforms Taobao and Tmall, newer entrants such as Pinduoduo and Douyin have eroded its share by targeting price-sensitive and younger consumers with aggressive discounting and social-commerce models.

In its latest quarterly report, Alibaba posted revenue growth of just 5% year-over-year — a far cry from the 30–40% growth rates investors became accustomed to in the 2010s. Gross merchandise volume (GMV) on its core e-commerce platforms even declined slightly, signaling competitive pressures are here to stay.

Cloud: High Hopes, but Execution Lags

Alibaba Cloud, once seen as the company’s next big growth engine, has yet to fully capitalize on China’s digital transformation. Despite being the market leader in China’s cloud services sector, Alibaba Cloud’s revenue growth has decelerated, partly due to price competition and slowing enterprise IT spending in a weak macroeconomic environment.

While the cloud division remains profitable, margins are thin, and the investments required to maintain leadership have weighed on group-level earnings.

Markets Sentiment: From Darling to Doubt

Perhaps the most striking change surrounding Alibaba in recent years has been the dramatic shift in market sentiment.

From Global Darling…

For years, Alibaba was a favorite among global institutional and retail investors alike. Its 2014 IPO remains the largest in history, raising over $25 billion. Alibaba was often compared to Amazon in terms of its market opportunity and execution capability — and at its peak in 2020, it commanded a market capitalization of over $800 billion.

The company embodied the promise of China’s consumer-driven growth story and was seen as a vehicle for investors to tap into Asia’s rise.

…to Caution and Retreat

That narrative has now flipped. Since late 2020, Alibaba has lost more than 70% of its market value, as regulatory crackdowns on China’s tech sector, fines for alleged anti-competitive behavior, and forced divestments have undermined investor confidence.

Geopolitical tensions between the U.S. and China have only added to the unease, with concerns over potential delistings from U.S. exchanges and restrictions on U.S. investors buying Chinese equities.

Morgan Stanley’s downgrade is just the latest in a series of cautionary notes from Wall Street. Institutional ownership has declined steadily over the past two years, while retail investors have largely moved to other high-growth names in safer jurisdictions.

Competitive Landscape: A Fierce Battlefield

Alibaba also faces intensifying competition across all its key business lines.

E-Commerce: New Rivals Emerge

Pinduoduo’s rapid rise, driven by its focus on deep discounts and group-buying features, has resonated with cost-conscious Chinese consumers. Meanwhile, ByteDance’s Douyin has turned its short-video platform into a shopping destination, combining entertainment and commerce in a way that has attracted younger demographics.

JD.com remains a formidable competitor, with its focus on supply-chain efficiency and superior delivery service winning loyalty among high-value customers.

Cloud and AI: Crowded Race

In cloud computing, Tencent Cloud and Huawei Cloud have gained ground, while smaller players are increasingly nibbling at niche segments. Moreover, the rush to develop AI infrastructure in China has increased capital intensity, making profitability more elusive.

Valuation: Cheap for a Reason?

On the surface, Alibaba’s current valuation seems compelling. At around 9x forward earnings, Alibaba trades at a steep discount to its historical average and far below U.S. peers like Amazon and Microsoft.

Its price-to-book ratio has also dropped to ~1.2x, suggesting the market has largely written off much of the company’s future growth potential.

However, as the saying goes: “Cheap stocks are cheap for a reason.” Investors must consider whether Alibaba’s low multiple reflects temporary cyclical challenges or a more permanent structural decline in its business prospects.

Battle for Your Plate: The Billion-Dollar Food Delivery Bloodbath

Over the past decade, food delivery and flash commerce have transformed how consumers interact with restaurants, grocers, and retailers. The promise was simple: convenience, speed, and scale — delivered through an app. Yet in 2025, what was once hailed as the future of retail is fast becoming a cautionary tale of intense competition, vanishing margins, and shareholder fatigue.

As major players like DoorDash (DASH), Uber Eats (UBER), Grab (GRAB), Deliveroo (ROO), Meituan (3690.HK), and Zomato (ZOMATO.NS) battle for dominance, investors are left asking: is this a land-grab worth fighting for — or a billion-dollar bloodbath destined to leave no winners?

This article dives into the risks unique to food delivery and flash commerce, analyzes the current market share breakdowns, and explores what investors should watch as the fight for your plate continues.

Food Delivery and Flash Commerce: The Risks Are Mounting

The business of food delivery and its younger cousin, flash commerce (ultra-fast 10–20 minute grocery delivery), is inherently risky — a reality now surfacing in quarterly earnings reports.

Thin Margins, Price Wars

By design, food delivery operates with razor-thin take rates — typically 10–15% on gross order value — while incurring significant costs for driver incentives, logistics, and marketing. Competition has kept pricing aggressive, forcing players to subsidize both customers and drivers in a race for market share.

Even market leaders have struggled to turn profits. DoorDash has only recently posted modest EBITDA profitability after years of losses; Uber’s delivery segment has achieved positive adjusted EBITDA, but on a slim base relative to its bookings. Meituan has fared better due to its market dominance in China and diversified business, yet faces regulatory pressure and slowing demand.

Flash commerce has been even more brutal: companies like Getir, Gorillas, and Jokr raised billions of dollars at peak valuations only to retrench, lay off workers, and shutter operations in key markets as unsustainable economics caught up. Ultra-fast delivery demands higher fulfillment costs, dedicated dark stores, and a density of orders per hour that few urban centers can sustain profitably.

Regulatory and Labor Risks

As regulators catch up with the gig economy, delivery platforms face mounting scrutiny over worker classification, minimum wage compliance, and social benefits for couriers. Europe’s directive on platform work, California’s AB5 law, and similar measures in Asia are increasing operating costs and exposing platforms to legal risk.

Additionally, in many markets, delivery platforms are facing caps on commission fees they can charge restaurants — directly eating into their margins while restaurants themselves push back against platforms’ power.

Market Share Breakdown: Who Holds the Plate?

Despite the challenges, food delivery remains a massive global market, estimated at $1.4 trillion by 2030 according to UBS. Below is a snapshot of market share by region as of mid-2025.

United States

The U.S. remains the world’s largest and most competitive food delivery market.

• DoorDash: ~60%

• Uber Eats: ~33%

• Grubhub (Just Eat Takeaway): ~5%

• Others: ~2%

DoorDash’s focus on suburban markets and logistics innovation has kept it ahead, while Uber Eats benefits from its global brand and cross-selling with ride-hailing customers. Grubhub has faded significantly since being acquired by Just Eat Takeaway.

Europe

Europe is a patchwork of markets with no clear pan-European leader.

• Just Eat Takeaway: strong in the UK, Netherlands, and Germany

• Deliveroo: significant in UK, France, and UAE

• Uber Eats: presence across multiple countries but no #1 position

• Glovo (Delivery Hero): dominant in Southern Europe and emerging markets

Price wars and regulatory pressures have made Europe particularly difficult to achieve profitability in, with Deliveroo and Just Eat Takeaway each reporting uneven performance.

Asia

Asia is home to the largest and most dynamic delivery markets, particularly China and India.

• Meituan: ~65% share in China’s food delivery

• Ele.me (Alibaba): ~25% in China

• Zomato: ~55% in India

• Swiggy: ~40% in India

• GrabFood: leading in Southeast Asia, especially Singapore, Malaysia, and Vietnam

China’s market has already consolidated into a duopoly, while India remains a fierce two-way fight between Zomato and Swiggy.

The Billion-Dollar Bloodbath: Why Profitability Remains Elusive

The competitive dynamics in food delivery mirror those of other network-effect businesses — only without the lucrative margins enjoyed by cloud platforms or software-as-a-service.

Customer Churn and Subsidies

High customer churn forces platforms to spend heavily on promotions just to maintain order volumes. Consumers are notoriously price-sensitive and often app-hop to whichever platform offers the best deal on a given day.

Overcapacity and Courier Costs

In urban areas, overcapacity in delivery fleets and rising driver pay are eroding unit economics. Platforms must balance driver supply with consumer demand while minimizing idle time, a logistical challenge that becomes even harder in low-density markets.

Flash Commerce Fallout

Flash commerce has proven even less sustainable. Getir, once valued at over $11 billion, has exited several markets and slashed its valuation by two-thirds. Gorillas was acquired at a steep discount by Getir, while Jokr retreated entirely to focus on Latin America.

Many investors now see ultra-fast grocery as more of a niche service than a scalable global model.

Regulatory and Political Risks: Lingering Shadows

Perhaps the most difficult challenge for investors to price is regulatory risk.

Since 2020, the Chinese government has imposed a series of measures aimed at curbing the influence of large internet platforms, promoting competition, and ensuring data security.

Alibaba was fined a record $2.8 billion in 2021 for alleged antitrust violations. Its fintech affiliate Ant Group was forced to shelve its highly anticipated IPO and restructure under tighter oversight.

While regulatory pressure has eased somewhat in 2024–2025, the specter of renewed scrutiny remains. For global investors, uncertainty over China’s policy direction toward its private sector remains a significant overhang.

What Should Investors Do?

The central question for investors is whether Alibaba represents a value trap or a turnaround opportunity.

Reasons to Avoid

• Continued regulatory uncertainty and political risk.

• Sluggish consumer spending recovery in China.

• Rising competition across all business lines.

• Declining investor sentiment and institutional ownership.

Reasons to Hold (or Even Accumulate)

• Attractive valuation relative to history and peers.

• Strong balance sheet with over $70 billion in cash and equivalents.

• Dominant market position in e-commerce and cloud services.

• Potential for policy support if Beijing shifts to stimulate the private sector.

For long-term investors willing to stomach volatility and geopolitical risk, Alibaba could eventually recover as China’s economy stabilizes and competitive pressures normalize. However, patience and a high risk tolerance are prerequisites.

Conclusion: Picking Your Battles Wisely

Morgan Stanley’s downgrade underscores the challenges Alibaba faces in regaining its footing. Once the undisputed leader of China’s tech sector, Alibaba now finds itself fighting on multiple fronts — against rivals, regulators, and market sentiment.

For some investors, the risks simply outweigh the potential rewards, making it a battle best avoided for now. For others with a contrarian bent and a long-term horizon, Alibaba’s depressed valuation could present an opportunity to accumulate shares at a discount.

Either way, investors should go into this fight with their eyes open, understanding that the road to redemption will not be quick or easy.

Takeaways:

• Morgan Stanley’s downgrade reflects both cyclical and structural challenges for Alibaba.

• E-commerce growth has slowed, while competition and regulatory risks persist.

• Valuation is attractive, but investor sentiment remains weak.

• Investors must weigh whether the potential turnaround justifies the risks involved.

• For now, this is a war that demands patience, discipline, and careful position sizing.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub