Events have conspired to make 2020 a truly momentous year, with Covid-19 making it like no other in recent memory. While Alibaba (BABA) has managed to sail though the pandemic virtually unscathed, the year’s final stretch is proving to be more of a challenge on a completely different level.
First, the Chinese regulators halted sister company Ant Group’s slated record-breaking November IPO. And now the Chinese authorities have opened an investigation looking into Alibaba’s alleged monopolistic behavior. The probe revolves around allegations the company is stifling competition by coercing merchants to sign forced exclusivity agreements.
As a result, the stock has been on a bit of a roller coaster ride recently. While Truist analyst Youssef Squali notes the “lack of clarity” may impact the share price in the short term, recent events have done little to dampen his enthusiasm.
“We remain big fans of BABA and believe that barring a breakup (unlikely), BABA has reached a size/scale, which makes it a-must for shoppers/ merchants, even if “forced exclusivity” is eliminated,” the 5-star analyst noted.
“While altering BABA’s business practices may be negative for the company short-term, we believe that consumers and merchants, if given a choice, will always gravitate towards the largest marketplaces with the most liquidity. With 881 million mobile monthly active users (as of September 2020), and the dominant share of ecommerce, we believe BABA has reached the “escape velocity” to continue to attract most merchants and most shoppers even if “picking one from the two” practice is eliminated,” Squali added.
That said, the uncertainty surrounding Ant’s IPO has brought about a reduction to Squali’s Ant valuation – which is cut back from $250 billion to $150 billion. The analyst also admits the latest regulatory scrutiny could be a “key risk for the stock in 2021.”
Squali also reminds investors that the practices Alibaba is being accused of are not exclusive to the e-commerce giant, but ones used by “many other leading Internet companies across ecommerce, food delivery and other online services.” Therefore, the regulators are “likely to use BABA as a way to regulate the online industry as a whole.”
All told, Squali reiterates a Buy rating on BABA shares and sticks to his $308 price target. Should this target be met in the year ahead, investors could be pocketing a gain of ~32%. (To watch Squali’s track record, click here)
Amongst Wall Street’s analyst crops, Squali is one of many BABA fans. The stock’s Strong Buy consensus rating is based on Buys only – 21, in total. The average price target is a bullish one, too; At $340.65, the projection is for upside of 46% over the next 12 months. (See BABA stock analysis 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.
