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Alibaba warned there was trouble before Barron's

Alibaba IPO NYSE
Adam Jeffery | CNBC

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Lost in the controversy between Barron's negative Alibaba cover story from Saturday and the company's rebuttal on Sunday is that Alibaba actually told investors last week there was trouble ahead.

Jane Penner, Alibaba's head of investor relations, said last Tuesday at the Citi Global Technology conference that gross merchandise volume (GMV), a proxy for gross sales, was a mid-single-digit percentage below its expectations for the September quarter.

The company was seeing the weakness "across all product categories" and it is "fairly broad-based" she noted. The cautious comments were eyebrow raising as they were given less than a month after Alibaba reported earnings in mid-August.

Wall Street was caught off guard due to Penner's statements as Alibaba shares reversed to sharply lower from up 4.5 percent Tuesday morning to close down 4.7 percent on the day, a 9 percent intraday decline. However, the stock is still above its low of $60.25 on Tuesday.

CNBC Pro reported on Tuesday afternoon that Penner's cautious comments would likely mean Wall Street analysts would be forced to cut earnings estimates and price forecasts in the days ahead.

"We have completed a few dozen calls with investors both in Asia and in the U.S. and European markets over the past three days. Few shareholders relish the sell-side downgrades that are likely to set in, in the wake of a diminished September quarter GMV outlook," wrote Deutsche Bank's Alan Hellawell in a note to clients last Friday.

Here's a timeline of the many analysts weighing in last week:

  1. Tuesday—Pacific Crest's Cheng Cheng lowered GMV numbers for 2016 and 2017. Cheng's Alibaba price target goes from $94 to $80.

  2. Wednesday—Stifel's Scott Devitt revised profit margin and GMV estimates lower. Devitt's price target goes from $97 to $88.

  3. Friday—Deutsche Bank's Hellawell lowers GMV and 2016 earnings estimates by 6 percent. Hellawell's price target goes from $89 to $85.

  4. Saturday—Evercore ISI's Ken Sena reduces sales estimates and lowers his price target from $95 to $86.

Wall Street tends to pay higher valuation multiples when growth rates accelerate, but the flip side is true as multiples tend to contract when growth rates slow down.

Read More Here come the bearish analyst comments on Alibaba

Alibaba's gross merchandise volume slowed to 34 percent year over year in the June quarter from 40 percent in the March quarter.

With Penner's negative comments for the current September quarter, it will now be four quarters of slowing growth.

The other key issue is the share lockup later this month on the one-year anniversary of the IPO. Approximately 1.6 billion shares, representing 63 percent of shares outstanding, will be freely salable on Sept. 21.

"A substantial majority of our then-outstanding ordinary shares that have not been converted to ADSs are subject to lock-up agreements with various release dates. By September 2015, all these ordinary shares will no longer be subject to any lock-up arrangement and may be freely converted into ADSs from time to time. ... Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline significantly."—Alibaba's Form 20-F filing

Read MoreIs the thrill gone for Apple investors?

Although Alibaba management vowed on the last earnings call they would only sell a "small amount" of shares from their charitable trusts on this month's lockup, there is a large difference from a public vow not to sell to being legally bound.

With another quarter of slowing growth and the impending share overhang from the large lockup ending, it may be prudent for investors to stay away from Alibaba until these catalysts are behind it.

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