There’s no other way of putting it, this year has not been kind for investors of Alibaba (BABA) with shares down 38%. The Chinese ecommerce juggernaut has – like other Chinese industry heavyweights – come under pressure from an increasingly hostile regulatory environment but has also had to contend with slowing ecommerce growth.
Adding more misery are the recent events – from the Zhengzhou flood to the uptick in COVID-19 cases in selected key provinces such as Jiangsu – and as Needham’s Vincent Yu notes, “China’s macro is taking hits,” all on display in the recent NBS (National Bureau of Statistics) data.
Total Retail year-over-year growth slowed down from 12.1% in June to 2.5% in August while the Total Online Retail YoY growth rate dropped from 13.9% in June to 6.1%.
Discretionary consumption, including apparel and home appliances – key categories for Alibaba – have been taking the “biggest hit.”
Given the macro weakness, Yu has now reduced his 2QF22 revenue estimate by 4% while China commerce revenue forecast gets a 7% haircut.
Furthermore, weighing on margins are the company’s “continued strategic investments” in Taobao Deals, merchants support, AutoNavi’s high-definition maps and grocery shopping. Specifically, for Taobao Deals, there have been several areas of focus, including developing the supply chain, logistics infrastructures and warehouses expansions and user acquisition, especially in lower tier cities.
Despite the issues and the lowered estimates, Yu remains one of the Street’s most fervent BABA bulls, and following the share price drop, the analyst thinks the stock’s valuation is “very attractive.”
Accordingly, Yu maintains a Buy rating, and backs it up with a price target of $330, suggesting shares will soar by 137% in the year ahead. (To watch Yu’s track record, click here)
While the rest of the Street’s take is not quite as bullish, the average target still implies much room to run over the coming months; at $247.67, the figure could generate returns of a robust 78%. Over the past 3 months, 26 analysts have thrown the hat in with a BABA review and almost all are positive; the stock’s Strong Buy consensus rating is based on 23 Buys vs. 2 Holds and a solitary Sell. (See Alibaba 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.
