With the year’s first half done and dusted, companies will now begin dialing in the latest quarter’s financial statements. Next month, Alibaba (BABA) will deliver its earnings report for first quarter of fiscal year 2023 (June quarter).
In recent times, the slowing demand amongst consumers, rising competition and the uncertain macro picture have all impacted Alibaba’s top-line. In fact, 4QF22 amounted to the slowest quarterly revenue growth since the Chinese ecommerce behemoth became a public entity in 2014.
That said, according to NBS, in May, nationwide online physical goods’ GMV (gross merchandise value) rose by 7% year-over-year, while Alibaba’s management also made some positive commentary regarding a y/y uptick in GMV during the 618 shopping festival.
As such, J.P. Morgan’s Alex Yao thinks some investors might be expecting “upside risk” to Alibaba's CMR (customer management revenue) in the June quarter. On this front, however, Yao pours cold water on expectations.
“The core-core CMR revenue,” says the analyst, “may not have much room for positive surprise, due to order cancellations as a result of logistics network disruption (i.e. a temporary deviation between gross GMV growth and fulfilled GMV growth), which would negatively hurt Tmall’s commission revenue.”
That said, Yao thinks the good news might lie elsewhere. Along with the contracting top-line, Alibaba’s profit profile has taken a hit, given the company’s heavy investments. However, there might be some changes here which will favorably affect margins.
For one, Yao notes this year’s advertising push for 618 was rather muted, while several media outlets have reported that the company has “downsized several business lines.”
“We believe these developments are in line with the management’s message to focus on managing healthy cashflow and improving efficiency in FY2023,” Yao commented. “Given management’s commitment to cost optimization, we think margins could offer room for positive surprise in coming quarters.”
As such, expecting a “gradual ecommerce recovery,” and turning “more positive” on Alibaba’s margin outlook, Yao has raised his price target for the stock from $130 to $140, suggesting shares have room for ~17% growth in the year ahead. Additionally, with BABA being one of Yao’s “top picks in the China Internet universe,” the analyst rates the stock an Overweight (i.e. Buy). (To watch Yao’s track record, click here)
The rest of the Street supports Yao's thesis. In fact, the average price target is more upbeat; at $159.72, the figure is expected to yield 12-month returns of ~33%. The stock boasts a Strong Buy consensus rating, based on 19 Buys, 2 Holds, and 1 Sell. (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.
Alibaba Group Holding Limited (NYSE: BABA) is an online wholesale and retail giant in China. Its businesses also include cloud computing, digital media, consumer services, entertainment, and content platforms. It is headquartered in Hangzhou, China.
Of late, the $302.1-billion company is dealing with the adverse impacts of the revival in Covid-19 cases in the country. The American Depository Receipts (ADRs) of Alibaba have declined 3.6% year-to-date. The closing price was $116 on July 1 (Friday).
Despite the weak price performance, analysts on TipRanks are optimistic about the prospects of this Chinese company.
On TipRanks, Alibaba has a Strong Buy consensus rating based on 17 Buys and two Holds. BABA’s average price target is pegged at $162.34, reflecting upside potential of 39.95% from current levels. It scores a 9 out of 10 on the TipRanks Smart Score Rating system.
In May, Alibaba’s Chairman and CEO, Daniel Zhang, said, “Looking ahead, we will continue to execute on our multi-engine growth strategy by strengthening our digital infrastructure and focusing on quality growth to create long-term value for our customers, shareholders and other stakeholders across our ecosystem.”
Last week, the company’s digital technology unit, Alibaba Cloud, unveiled the Energy Expert platform. This new offering will help the company’s customers to assess their carbon footprint and take action to manage it effectively.
Also, Alibaba formed a new subsidiary, Lingyang Intelligent Service Co, last week. The new unit’s services (related to data intelligence) will equip enterprises to enhance their operational efficiency and decision-making abilities.
Wall Street's TakeOn June 29, 2022, Rob Sanderson of Loop Capital reiterated a Buy rating on BABA while increasing the price target to $185 (59.48% upside potential) from $170.
It seems that the company’s healthy prospects have attracted hedge funds and retail investors. TipRanks reveals that hedge funds holding in BABA has gone up by 1.1 million shares in the last quarter. Further, the number of retail portfolios with exposure to BABA stock has increased 1.3% in the past 30 days.
Most importantly, the TipRanks Website Traffic tools point out that the total traffic to the company’s websites is estimated to have increased 61.8% year-over-year in the fourth quarter of Fiscal 2022 (ended March 31, 2022).
The company’s website traffic is estimated to have increased 8.38% year-to-date, compared with 2021. However, the footfall on the company's website has fallen 8.60% so far in the first quarter of Fiscal 2023 (ending June 2022) versus the fourth quarter of 2022.
The increase in the company's website traffic trend underpins the company’s growing footprints and growth initiatives. However, the impacts of the pandemic and other macro issues are visible from the quarter-to-date fall in website traffic.
ConclusionDespite near-term headwinds, investors may find Alibaba attractive, due to its global operations, innovation capabilities, and initiatives to strengthen prospects.
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