There’s no point going against the grain sometimes. Following in the footsteps of just about every Wall Street analyst, Baird’s Colin Sebastian thinks it’s time to make some downward adjustments to his Alibaba (BABA) model.
Ahead of the Chinese ecommerce giant’s F3Q22 (December quarter) earnings, Sebastian has reduced his revenue estimate from ¥253.4 billion to ¥245.8 billion, which now suggests an 11% year-over-year uptick.
More specifically, the overall reduction is on account of pruning China commerce and total commerce estimates – from ¥171.72 billion and ¥222.78 billion to ¥166.1 billion and ¥216 billion, respectively.
The newly revised estimates, says Sebastian, “primarily reflect the deceleration” in e-commerce sales reported by China’s NBS (national bureau of statistics) for November and December.
Moreover, New Retail and advertising revenues could also get a hit due to recent pandemic-related lock downs in several cities. Add in the possibility of “some operational constraints in local consumer services and International commerce,” and the outlook requires some adjustments too.
As such, Sebastian has reduced the respective F3Q and F4Q adjusted EBITA forecasts to ¥48.2 billion (indicating a 20% margin) and ¥29 billion (14% margin).
With companies “distracted by macro issues,” and a number of verticals facing the regulators’ ire – digital media and online education have been impacted by recent government actions – Sebastian believes the Cloud segment growth may also come across a variety of headwinds. “In addition,” says the 5-star analyst, “With recent strength in hybrid cloud services as more companies in China shift workloads off-premise, we expect some near-term headwinds as companies delay IT projects.”
That said, digital transformation remains a “key tailwind” over the long-term and despite these near-term headwinds, Sebastian is “encouraged by a more proactive approach” to product development. The analyst also makes sure to note Alibaba’s “strong technology-oriented platform and ongoing large TAMs.”
Therefore, the rating stays an Outperform (i.e. Buy) and is backed by a $180 price target. The implication for investors? Upside of 46%. (To watch Sebastian’s track record, click here)
Overall, there are currently 23 BABA reviews on record, of which 3 are to Hold, while the rest recommend to Buy, all culminating in a Strong Buy consensus rating. Moreover, the average price target remains a bullish one; at $188.79, the objective could yield returns of ~54% in the year ahead. (See Alibaba stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
