Alibaba (BABA  ) shares were initially higher following the company's better-than-expected Q2 earnings report, but these gains were given back in ensuing sessions, primarily due to increased tensions between the U.S. and China, following House Speaker Nancy Pelosi's visit to Taiwan.

Since peaking in October 2020, Alibaba has faced a litany of challenges including the mysterious disappearance of founder and former CEO Jack Ma, the pulling of its Ant Financial IPO, penalties and fines from the CCP over issues like monopoly power and data privacy, and chatter that the U.S. Securities and Exchange Commission (SEC) may crackdown on the accounting practices and ADR listings of Chinese companies. More recent bearish headwinds are the slowing Chinese economy, continued impact of lockdowns and a stringent, zero-COVID policy, and inflammation of tensions over the Taiwan issue.

Inside the Numbers

In Q2, Alibaba reported adjusted earnings per share of $1.75 which exceeded expectations of $1.58 per share. Revenue also topped expectations at $30.7 billion vs $30.1 billion, about a 1% drop.

This was notable in that it was Alibaba's first quarterly revenue decline in its history. It attributed the decline to the coronavirus outbreak which the country continues to battle with strict lockdowns, despite the economic pain it's causing. Its e-commerce business was also negatively impacted by supply chain and logistics.

The company did note signs of improvement in June and credited its diversity of operations and various business units to keep revenue stable despite the numerous headwinds.

Another development for Alibaba is that Softbank (SFTBY  ) is trimming its stake in the company from 23.7% to 14.6% to boost its cash position given the downturn in Softbank's holdings. In total, the fund lost $50 billion in the first half of the year. However, Softbank's investment in Alibaba has been wildly lucrative and one of the best venture investments in history.

Even while retaining a big stake in Alibaba, Softbank will book a $34 billion profit. This move has been largely telegraphed and is one factor in Alibaba's underperformance. Further, Son is reliant on money from U.S. investors for his funds which means that he has been actively trying to reduce the weight of Chinese holdings in his funds given the rising tensions between the countries and potential for de-listing or other, unforeseen risks.