Chinese internet commerce and cloud computing giant Alibaba (NYSE:BABA) will release its second quarter Fiscal 2024 earnings on November 16. The sequential moderation in online consumer demand in China and a weak macro environment will likely restrict its revenue growth rate. However, cost reduction and improving operational efficiencies could cushion its bottom line.
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Let’s delve deeper.
Analysts’ Q2 Projection
Wall Street expects Alibaba to report revenue of $30.79 billion in Q2, slightly higher than the prior-year quarter’s sales of $30.23 billion. Macro uncertainty in China will likely limit the growth of its e-commerce and cloud businesses.
While Alibaba’s top line is expected to register marginal growth, its bottom line could get a solid boost from its efforts to cut costs and improve operating efficiency. Analysts expect Alibaba to post earnings of $2.10 per share compared to an EPS of $1.77 in the prior-year quarter.
Analysts Lower Price Target Ahead of Q2 Earnings
Several analysts lowered their price target on Alibaba stock ahead of the announcement of its financial results for the quarter ended September 30, 2023. Mizuho Securities analyst James Lee reduced his price target to $120 from $145 on November 13. The analyst trimmed the price target to reflect a weaker macro backdrop. Nonetheless, Lee reiterated the Buy rating on BABA stock.
Citing weak consumption trends in China, Loop Capital Markets analyst Rob Sanderson cut BABA’s price target to $125 from $135 on November 10. However, the analyst remains bullish about Alibaba’s prospects and expects the company to benefit from strength in the advertising business.
Echoing similar sentiments as Lee and Sanderson, Barclays analyst Jiong Shao, Truist Financial analyst Youssef Squali, and Citi analyst Alicia Yap also reduced their price targets on BABA stock ahead of the quarterly print.
Is Alibaba a Good Stock to Buy Now?
The macro uncertainty had led analysts to lower their price targets on Alibaba stock ahead of earnings. However, these analysts maintain a bullish outlook on the stock. With 15 unanimous Buy recommendations, BABA stock sports a Strong Buy consensus rating.
Further, the average BABA stock price target of $142.33 implies 69.70% upside potential from current levels.
Insights from Options Trading Activity
Options traders are pricing in a +/- 5.7% move on earnings, greater than the previous quarter’s earnings-related move of 4.6%.
Bottom Line
Alibaba is taking initiatives to boost its e-commerce sales, reduce costs, and drive efficiency. However, the weak macro backdrop continues to play spoilsport, leading analysts to cut the price target on BABA stock ahead of Q2 earnings.
