Is Baba Stock A Good Buy [REPACK]
Alibaba (BABA -1.16%) posted its latest quarterly report on Feb. 23. For the third quarter of fiscal 2023 (ended on Dec. 31), the Chinese e-commerce and cloud giant's revenue grew 2% year over year to 247.8 billion yuan ($35.9 billion) and beat analysts' estimates by $40 million. Its adjusted net income rose 12% to 49.9 billion yuan ($7.2 billion), or $2.79 per ADS, and also cleared the consensus forecast by $0.39.
is baba stock a good buy
However, that earnings beat didn't bring the bulls back to Alibaba, and its stock remains more than 70% below its all-time high from October 2020. Is this a buying opportunity for investors who can look past its near-term challenges?
Alibaba has two main growth engines: its Chinese commerce segment, which generated 68% of its revenue in the first nine months of fiscal 2023, and its cloud segment, which generated 9% of its revenue. The Chinese commerce segment houses Tmall and Taobao, the country's two largest online marketplaces, and its brick-and-mortar stores. The cloud segment handles Alibaba Cloud, the top cloud infrastructure platform in China with a 36% share of the market, according to Canalys.
The bulls expected those two businesses to drive Alibaba's long-term growth. But an antitrust probe in 2021, which led to a record fine and tighter restrictions, curbed the growth of Alibaba's e-commerce business. Inflation, sluggish consumer spending, and intermittent COVID-19 lockdowns exacerbated that deceleration last year. Those macro headwinds also caused companies to spend less money on Alibaba's cloud services. As a result, both segments experienced severe slowdowns in fiscal 2023:
The slower growth of those two core businesses was worrisome since they were the only two units that generated profits on an adjusted EBITA (earnings before interest, taxes, and amortization) basis. Those adjusted profits regularly funded the expansion of Alibaba's smaller and unprofitable businesses -- which include its overseas marketplaces, logistics network, digital media and entertainment services, and innovation initiatives unit.
But there's a silver lining: The adjusted EBITA margins of the Chinese commerce and cloud segments stayed flat year over year, at 33% and 2%, respectively, in the first nine months of fiscal 2023. Alibaba also reined in its spending across all of its unprofitable business divisions during that period, and its total adjusted EBITA margin expanded from 18% to 19%.
Alibaba expects its growth to stabilize this year as China relaxes its zero-COVID restrictions. During the conference call, CEO Daniel Zhang said even though its sales of physical goods "remained weak" in January and February, its merchants were expressing a "strong desire" to get back to business as the impacts of COVID-19 and travel during the Lunar New Year (which curbed its online sales) subsided. Zhang said the company expected this recovery to continue throughout the year.
Zhang also expects the cloud business to stabilize as large companies resume their spending on hybrid cloud deployments that had been delayed by the COVID-19 lockdowns. Furthermore, the growth of Alibaba Cloud across the financial services, education, and automotive verticals also offset its declining revenue from the internet sector. That decline can be largely attributed to ByteDance's decision to start removing TikTok from Alibaba's overseas servers in 2021.
Alibaba didn't provide any guidance, but analysts expect its revenue to rise 3% in fiscal 2023 and another 12% in fiscal 2024 as China's macro situation improves. They expect its earnings per share to grow 13% this year and 67% in fiscal 2024.
Based on those projections, Alibaba's stock looks historically cheap at 14 times next year's earnings. Its cloud and media rival Tencent trades at 23 times next year's earnings, while its American counterpart Amazon has a forward price-to-earnings ratio of 56.
Yet Alibaba might also deserve that discount because its recovery is shaky, it still faces delisting threats in the U.S., and its cloud business could be affected by the Biden administration's recent ban on advanced chip sales to China. It also arguably makes more sense to invest in Alibaba's rival Pinduoduo -- which operates a simpler business model and is growing at a much faster rate -- as a long-term play on China's e-commerce market.
Alibaba's valuation might limit its downside potential, but I don't see any reasons for the stock to take off this year. I'd keep a close eye on it, but I wouldn't rush to buy it when other high-quality stocks are still on sale.
In March, the BABA share price fell below $100 for the first time since 2017. It has since been unable to hold above that level. But the stock had gained value since late May after the company announced its first-quarter earnings report.
Toby Xu, chief financial officer of Alibaba Group, also commented: Despite the challenges posed by the COVID-19 resurgence, we delivered stable revenue performance year-over-year. We have narrowed losses in key strategic businesses given ongoing improvements in operating efficiency and increasing focus on cost optimisation .
Historical stock price data shows that BABA dropped by 49% in 2021, ending the year at $118.79 a share, as worries about the Chinese market and a sell-off in technology stocks in the US exerted further downward pressure.
The record fine was lower than the market had anticipated and removed some of the uncertainty surrounding the potential penalty that would be imposed. However, a gain in the share price was short-lived and it continued the downward trend that started in October 2020, after hitting its all-time highest stock price of $309.92.
The Alibaba share value dropped to $76.76 on 15 March 2022, its lowest level since 2016. The price then jumped to $104.98 the following day, as the Chinese government said it would support the stock market and economy, and provide a more favourable regulatory environment.
On 22 March, Alibaba announced it was scaling up the size of its Alibaba share market repurchase programme to $25bn from $15bn. By 18 March, the company had bought up a total of 56.2 million American Depositary Shares (ADRs), equivalent to $9.2bn, under the programme.
On 26 May, Alibaba had announced its quarterly earnings for January to March, offering mixed results. It reported better-than-expected customer management revenue (CMR) revenue and cost optimisation but failed to meet its expected core commerce margin.
The share price responded to the results by rallying more than 14% on 26 May to $94.48 but has traded consistently below $100. As of 25 October, BABA shares are trading hands at $61.56. Is Alibaba stock a buy, sell or hold following the reopening of Shanghai from lockdown at the start of June?
As of 25 October, the average price target from 21 Wall Street analysts who have issued a BABA stock price target is $162.24 in one year, according to data compiled by Market Beat. The estimates ranged from $110.00 at the low end to a high of $250.00. There were 19 buy ratings and two hold ratings.
However, Coin Price Forecast projected the price could recover, although it would take 12 years to return to the previous all-time high above $300. The price could reach $82.16 by the end of 2022 and $117.03 by the end of 2023. The site makes an Alibaba stock forecast for 2025 of $164.54 by the end of the year, and $250.05 by the end of 2030. By the end of 2034, the stock could trade at $303.39, putting it on track for further gains by 2040.
If you are considering investing in stocks, we recommend that you always do your own research. Look at the latest Alibaba stock news, market trends, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.
At the time of writing (25 October), some Wall Street analysts expected the BABA share price to rise over the coming year, according to data compiled by Market Beat. However, over the longer term, online forecasting site Wallet Investor was bearish on the outlook for the stock.
The direction of the Alibaba share price will probably depend on a number of factors, including the growth of Chinese consumer sales as well as government policy on technology stocks. A continued crackdown on large Chinese tech firms could continue to weigh on the stock, while policy clarity could ease downward pressure on the stock.
In late July, it was revealed that the U.S. Securities and Exchange Commission had added Alibaba to a list of Chinese companies that were at risk of being delisted for issues with accounting regulations. This news led to foreign investors unloading their Chinese holdings in American depository receipts (ADRs), the tool that allows American-based investors to easily purchase foreign stocks.
At the end of December, China revealed that it would finally be opening up its borders as it began to ease COVID-19 restrictions. Some quarantine measures for visitors dropped as of Jan. 8, the news boosted Chinese stocks linked to consumption-based products.
We will continue tracking the situation with Chinese stocks that trade in the U.S. It appears that there are finally signs of optimism when it comes to the Chinese economy opening up enough to allow these tech giants to resume standard business operations. We will have to wait and see to observe how smooth of a reopening we get in China.
View the latest news, buy/sell ratings, SEC filings and insider transactions for your stocks. Compare your portfolio performance to leading indices and get personalized stock ideas based on your portfolio.
Get daily stock ideas from top-performing Wall Street analysts. Get short term trading ideas from the MarketBeat Idea Engine. View which stocks are hot on social media with MarketBeat's trending stocks report.
Identify stocks that meet your criteria using seven unique stock screeners. See what's happening in the market right now with MarketBeat's real-time news feed. Export data to Excel for your own analysis. 041b061a72