While 2023 has been something of a vintage year for mega-cap tech stocks, one international giant has been thoroughly excluded from the rally. Alibaba (NYSE:BABA) shares are down by 11% year-to-date and they certainly weren’t helped by last week’s second fiscal quarter of 2024 readout.
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After the earnings report, the stock took a hit as investors were unimpressed with what was being offered, even though, at first glance, the headline metrics and the company’s actions seemed pleasing to investors.
Revenue climbed by 9% year-over-year to $30.81 billion, falling short of the Street’s forecast by $230 million. However, by and large, you could call that result in line with expectations. On the other end of the scale, adjusted earnings per diluted share (EPADS) of $2.14 beat the consensus estimate by $0.05.
Additionally, free cash flow reached almost $6.2 billion, a 27% improvement compared to the same period a year ago. Moreover, the company announced an annual dividend of $1/ADS and said that during the quarter it had repurchased $1.7 billion worth of stock.
However, it was another announcement that really rankled. Alibaba said a planned spin-off of its cloud computing business will now not happen after all, claiming the new U.S. export rules had resulted in an uncertain outlook for its Cloud Intelligence business.
Nevertheless, for Goldman Sachs analyst Ronald Keung, the post-earnings drop opens up an opportunity for investors.
“While the market has reacted negatively to the termination of cloud distribution and in-line print (we value Alibaba Cloud at US$40bn from prior US$43bn in our SOTP), we note Alibaba’s shares have already retraced to levels before the cloud distribution was announced in May 2023 with stabilized Taobao-Tmall CMR growth,” Keung said. “We expect ongoing buybacks and dividend to be funded by its FCF generation (driving mid-single digit yoy reduction in share count). We continue to view valuation as attractive…”
As such, Keung rates BABA shares as a Buy, with a $134 price target, suggesting that shares are expected to surge by 73% over the coming year. (To watch Keung’s track record, click here)
Overall, analysts are striking a bullish tone on BABA stock. 18 Buys and just 1 Hold assigned in the last three months add up to a Strong Buy analyst consensus. The average target stands at $125, suggesting shares will post 12-month growth of 59%. (See Alibaba stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
