For a company with a market cap around the quarter of a trillion mark, Alibaba (BABA) stock’s one-year performance resembles that of a small-cap. Over the past 12 months, the shares have lost 60% of their value as a confluence of bearish developments have kept pushing the share price lower.
According to Deutsche Bank analyst Leo Chiang, given the latest domestic Omicron outbreak and international geopolitical uncertainties, investors should expect “more near-term pressures for BABA across its various business lines.” The analyst says the “escalating lockdown measures” and international developments have hit the company hard on several fronts.
“1) ecommerce, due to logistical disruption; 2) other retail and local services, on muted offline activities; and 3) Cloud, because of on-site project delays,” Chiang explained. “On international, the recent geopolitical tensions have further dragged on the growth trajectory amid the ongoing impact of the EU’s removal of the VAT exemption and the currency depreciation in certain markets (e.g., Turkey).”
As for the June Quarter, assuming a gradual recovery which began in May, Chiang anticipates it will probably be the “toughest quarter for domestic businesses (e.g., ecommerce, other retail, local services, Cloud).” However, in light of the ongoing geopolitical uncertainties, over the next few quarters, international commerce “may continue to fluctuate.” On the margin front, to counter China Commerce’s soft performance, Chiang thinks the company will resort to “prudent” investments in new initiatives, Taobao Deal and Taocaicai.
That said, there are some positives to note. During the lockdown period, the FMCG (fast-moving consumer goods) and on-demand local services such as Hema and ele.me increased the new user count and “deepened user engagement,” particularly in major hubs like Shanghai and Shenzhen. Going forward, Chiang sees “structural opportunities post pandemic” for these businesses.
All in all, Chiang wraps up on a hopeful note: “Despite the near-term challenges, we remain confident in the ample potential and solid fundamentals of its new businesses, such as Cloud and international commerce, to support long-term growth.”
To this end, the Deutsche Bank analyst rates BABA a Buy along with a $172 price target. This target brings the upside potential to an 84%. (To watch Chiang’s track record, click here)
Overall, Wall Street takes a bullish stance on Alibaba shares. 16 Buys and 1 Sell issued over the previous three months make the stock a Strong Buy. Meanwhile, the $171.36 average price target suggests ~83% upside from current levels. (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.