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Alibaba Shuffles the Deck; Will It Be Enough?
Stock Analysis & Ideas

Alibaba Shuffles the Deck; Will It Be Enough?

Online commerce kingpin Alibaba (BABA) has been under fire from several directions lately. A shaky Chinese economy, a hostile regulatory environment, and more have given investors some pause in recent days. Perhaps sensing the mood shift, Alibaba recently made some moves designed to provide a clean slate to work from. Investors seem to be taking the news well so far.

I was bearish on Alibaba back in late November. Though I maintain many of my earlier concerns, Alibaba’s move could be just what was needed. (See Analysts’ Top Stocks on TipRanks)

Looking at Alibaba’s stock charts for the year so far shows slight improvement over late November. The company spent most of November either plateaued in the $160 range or in the middle of a plunge.

A small recovery kicked in just ahead of Thanksgiving, but the decline was back on immediately afterward. Between November 15 and December 1, the company’s share price lost around 20% of its value. (See Alibaba stock charts on TipRanks.)

Alibaba’s latest move, however, may be a breath of fresh air that the company desperately needs right now. Faced with plunging stock prices, Alibaba has taken tack that many “Dilbert” strips over the years endorse: reorganization.

The company revamped its operations, creating two new business units to handle e-commerce operations. One will focus on domestic e-commerce, while the other will tackle international operations. The move will allow the company to improve its agility. That’s a common problem as businesses grow and are less able to make rapid changes to meet conditions on the ground.

Additionally, Maggie Wu will no longer be the company’s chief financial officer starting this April. Her deputy, Toby Xu, will take over instead. The company cited the earlier-established leadership succession plan as the reason for the move. Xu was formerly part of PWC and has been the company’s deputy CFO since July of 2019.

Shuffling Deck Chairs on the Titanic?

There are two ways to think about the recent moves at Alibaba. 

Alibaba’s recent move could be the greatest thing that could happen to it. By shifting its e-commerce operations into domestic and international, the company can improve its speed of response to conditions on the ground. The recent events at Evergrande have left many Chinese to wonder what will happen next. Alibaba improving its preparations in the face of such a downturn could save it a lot of trouble and potential losses.

Additionally, replacing the company’s CFO could also give it some credit with regulators. Changing names in the C-suite suggests a new philosophy and a new path forward. Regulators may be at least willing to back off a bit to see where the changes go before stepping back in.

Conversely, this could be regarded as a largely cosmetic move. The shift to handle domestic and international in separate departments is a smart play. However, whether or not the move will actually allow the company to maneuver any better remains to be seen.

For example, take one huge job done by one huge department. Then, split it into two smaller jobs with half-size departments to tackle it. The actual dynamics of the job have changed very little. The job now has half the scope, but it also only has half the resources.

As for the CFO switch, remember that this is part of the company’s succession plan. They didn’t bring in Xu specifically to do the job; Xu was already there. Sure, he’s been seasoned as the company’s deputy CFO, but the impact to regulators may not be what could be.

Wall Street’s Take

Turning to Wall Street, Alibaba has a Strong Buy consensus rating. That’s based on 22 Buys and two Holds assigned in the past three months. The average Alibaba price target of $210.18 implies 67.1% upside potential.

Analyst price targets range from a low of $162 per share to a high of $252 per share.

Concluding Views

I remain bearish on Alibaba. I can understand anyone who believes this will be a help because it could be. Throw in share prices that haven’t been seen since 2017, and Alibaba might be looking like a gold-plated bargain. If you’re of a mind to speculate, you could do well with Alibaba.

However, too many factors are working against Alibaba for me to comfortably recommend buying in right now. Taking a wait-and-see stance here until April or so, when Xu gets in, could be a better strategy. With all the headwinds currently limiting Alibaba, there may be lower to go before Alibaba turns things around.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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