Alibaba (BABA  ) shares declined by about 4% since the company reported its Q2 earnings report which topped in terms of earnings expectations but missed analyst forecasts for revenue and customer growth. Overall, the stock price has remained depressed since the days leading up to the AliPay IPO, when it peaked at around $319.

Inside the Numbers

In Q2, Alibaba reported RMB $2.57 in earnings per share, beating expectations of $2.42. It was a 12% increase from last year. Revenue was 33% higher than last year but slightly fell short of forecasts at $30.9 billion vs expectations of $31.4 billion. Another miss was annual customers which also missed expectations at 828 million vs 830 million.

The company's revenue growth was inflated by its purchase of retailer, Sun Art. Without this, revenue would have been 22% higher. Earnings were depressed due to higher costs as Alibaba invests in new initiatives like Taobao Deals and Community Marketplaces.

The company's growth was driven by smaller units like logistics, international retail, and cloud computing which all had growth rates above the company average. Its cloud computing business saw a large deceleration to 29% but it did turn profitable and shows signs of margin expansion. Currently, it remains the largest cloud company in China with a 40% market share.

The company continues to prioritize growth over profits as it is investing heavily into its various units such as cloud computing, AI, and international expansion. It's also had to increase investment in its retail divisions as the competitors like JD (JD  ) and Pinduoduo (PDD  ) are catching up in terms of market share.

Stock Price Outlook

Currently, Alibaba's stock is about 41% lower than its all-time high before the AliPay IPO being curbed. The catalyst was criticisms from founder Jack Ma about the regulatory process. Eventually, the matter was settled with a hefty fine, and AliPay was reclassified and regulated like a financial institution rather than a technology company. There have been additional actions by the Chinese government against Alibaba and its peers regarding competition on its marketplaces, monopolistic behavior, privacy, etc.

Therefore, the stock remains quite attractive from a value and growth basis, but it's facing a potent headwind in terms of future regulatory action. There is always the possibility that Chinese companies listed on U.S. exchanges could be victims of increased tensions between the countries.