There’s a new sport on Wall Street called “lowering the estimates for Alibaba (BABA).” Anyone can participate and it looks like everyone is in.
Following in the footsteps of, well, everyone, Raymond James’ Aaron Kessler is not about to miss out on the activity.
Due to slowing China eCommerce growth in the December quarter and “likely continued softer near-term environment given the slowing real estate market, continued pandemic headwinds, and supply chain issues,” Kessler has, you guessed it, lowered his estimates for the ecommerce giant.
Accordingly, for 3Q22 (December quarter), Kessler has reduced his revenue forecast by 5.4% to 244 billion RMB – 2% lower than the Street’s call for 249.7 billion RMB. The analyst has also cut the EBITA estimate by 5% to 45.5 billion RMB.
Behind the lower expectations are concrete signs of a struggling Chinese economy. In the December quarter, China eCommerce growth decelerated to ~5.3% year-over-year compared to the ~8.7% growth seen in the September quarter.
Based on data from China’s National Bureau of Statistics, eCommerce sales of physical goods have been on a downtrend, falling from ~10% growth in October to ~5% in November, and then sliding to 1% in December. Additionally, from ~5% year-over-year growth for overall sales of consumer goods in the September quarter, the December quarter saw only 3.5% YoY growth.
Following the slashing of estimates, then, Kessler also has a new price target- the figure drops from $220 to $200, now implying share appreciation of 54% in the year ahead. Kessler’s rating stays an Outperform (i.e., Buy). (To watch Kessler’s track record, click here)
So far, Kessler’s actions follow the current Alibaba narrative to a T, and so does the 5-star analyst’s prognosis of what should follow next. Because most believe Alibaba will pull itself out of this slump and so does Kessler, who lists several reasons to stay positive: “1) we expect continued solid long-term China eCommerce growth with Alibaba the biggest winner; 2) we expect continued increases in take rate (~4% CMR+Commission take rate in FY21); 3) expect good growth in newer areas including Cloud, International, Local; 4) we believe valuation is attractive.”
So does the rest of the Street, ultimately. BABA stock has a Strong Buy consensus rating with only 3 out of the 23 reviews on record exhibiting a skeptical slant. Moreover, while the $192.65 target is slightly below Kessler’s objective, the figure suggests shares will be changing hands for a 50% premium a year from now. (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.