Last year was a very tough one for Chinese equities, with the Chinese government’s crackdown on Big Data intimidating international investors.
Starting from the ban on for-profit tutoring, which resulted in shares of New Oriental Education (EDU) and TAL Education Group (TAL) losing more than 90% of the value they had in their past highs, to the various fines the government imposed on Alibaba (BABA), it's not a mystery why China-based stocks suffered in 2021.
Alibaba, more specifically, lost nearly half its market cap year-over-year. However, the interesting part of its investment case is that during this time, its financials continued to grow, leading to the stock currently trading at a steep discount.
On the one hand, I can see why the ongoing risks attached to Chinese equities, including lack of clear communication with shareholders, nonnative corporate governance culture, and the VIE structure, amongst others, can deter investors from allocating capital to the stock.
On the other, BABA stock has become increasingly cheaper, and the situation has become increasingly harder to ignore. I believe that Alibaba's growing financials in the company's upcoming earnings through 2022 will be a strong driver in a potential valuation multiple expansion. For this reason, I am bullish on the stock.
Growing FinancialsWhile risks with Alibaba's investment case exist, the company has been growing rapidly with little to no signs of slowing down. The company’s most recent results apparently affirmed Alibaba’s resilience, despite the rough environment surrounding Chinese equities.
Revenues grew 29% to $31.1 billion, with Alibaba’s worldwide Ecosystem reaching about 1.24 billion annual active consumers. This implies 62 million net user adds compared to the prior quarter.
EPS per ADS came in at $1.74, 38% lower year-over-year, but this was only due to Alibaba's increased investments in key strategic areas, which should result in robust ROE over time, as has been the case historically for the company.
If Alibaba were to soften its CAPEX investments, the company's net margins could very well surpass 30%. Even the highest-margin American tech companies would be envious of such margins.
The Stock is Getting CheaperBased on Alibaba’s FY2022 estimated EPS of $8.56, the stock is trading at a (forward) P/E of around 13.9. With analysts expecting a very reasonable EPS growth of 14% next year (which even suggests a slowdown in terms of revenue growth), shares will be trading with a forward P/E of around 2.2 next year if the stock keeps hovering at its current price.
The stock’s performance continues to mismatch Alibaba’s growth and profitability prospects. There will have to be a point at which BABA stock hits its bottom, and considering the constant share decline and widening undervaluation, it shouldn't be far from here.
Alibaba’s management is actively taking advantage of this issue by repurchasing shares on the cheap. Last quarter, it repurchased around $5.1 billion worth of stock, which implies an annualized rate equal to 1.6% of the company's market cap.
Not a massive "buyback yield," but certainly another driver to help drive the stock higher moving forward, especially if the rate of buybacks accelerates.
Wall Street’s TakeTurning to Wall Street, Alibaba has a Strong Buy consensus rating, based on the 19 Buys and three Holds assigned in the past three months. At $203.20, Alibaba's stock forecast implies 71.3% upside.
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Disclosure: On the date of publication, Nikolaos Sismanis had a beneficial long position in the shares of Alibaba through stock ownership.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
Alibaba (NYSE:BABA) shareholders are sitting on hefty losses. It’s worth noting that Alibaba stock lost a substantial amount of value and is trading at a multi-year low. To be precise, Alibaba stock declined 50.2% last year, underperforming the market averages by a significant margin.
What’s Ahead?Due to the significant drop in its share price, Alibaba stock is “cheap,” as noted by CLSA analyst Elinor Leung. However, hedge funds and investors aren’t buying this dip.
TipRanks’ Hedge Fund Trading Activity tool shows that hedge funds have a negative view of Alibaba stock. They sold 1.1 million BABA shares in the last three months.
Furthermore, TipRanks’ Stock Investors tool shows that about 5.1% of investors holding portfolios on TipRanks have decreased their exposure to Alibaba stock in the last 30 days. Moreover, 0.6% of these investors reduced their stake in the last seven days.
Notably, regulatory pressure on Chinese tech giants and uncertainty have kept investors at bay. Meanwhile, macroeconomic headwinds could continue to hurt Alibaba’s prospects. During the last quarter’s conference call, management stated that China’s GDP and consumption are growing, but at a slower pace. The slowdown in growth will likely hurt Alibaba’s retail sales.
Besides macro concerns, heightened competitive activity remains a drag. Alibaba’s commerce business is facing increased competition, which is taking a toll on its overall revenue.
Taking stock of increased competition and weakness in the macro environment, Alibaba lowered its full-year sales growth forecast. Furthermore, Daiwa analyst John Choi cut his price target on Alibaba stock, citing intensifying competition.
Nevertheless, Alibaba’s management remains upbeat about its long-term prospects despite the near-term weakness in the domestic market. Alibaba continues to invest in its growth engines, including its cloud business and international expansion.
Alibaba CFO, Maggie Wu, stated that the company would benefit from the growth opportunities in its cloud business amid “digitization in the industrial internet era.”
Wu added that Alibaba’s strong balance sheet and profitability position it well to “expand into new addressable markets, for the long term.”
Wall Street’s TakeThe sharp pullback in Alibaba stock and the strength in the cloud business has kept most analysts bullish on Alibaba stock. On TipRanks, Alibaba has received 20 Buys and 3 Holds for a Strong Buy consensus rating.
Further, BABA's stock forecast on TipRanks shows solid upside potential due to the recent selling. The average Alibaba price target of $203.05 indicates 70.9% upside potential to current levels.
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Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
Alibaba's (NYSE: BABA) Freshippo, the grocery retail chain, is likely to add three new membership stores in January 2022, according to a report on Benzinga.
China Daily reported on Thursday that including the new stores, the tally will reach seven stores since initiation of the membership-only warehouse chain in October 2020.
DetailsTagged Freshippo Business Group-X Wholesale Store (X store), the new stores are planned to open in Shanghai, Suzhou, and Nanjing in the neighboring Jiangsu province. Notably, Alibaba also added one store in early December in Shanghai.
According to Freshippo, each store will have approximately 3,000 stock units for retail. More than 40% of products in the membership-only X store are the company's exclusive products.
Additionally, the X store delivers products within half a day to customers living within a 20-kilometer radius of the store. The products purchased in other Freshippo stores are delivered to customers within a three-kilometer radius of another store, with a minimum delivery time of 30 minutes.
VP of Freshippo, Zhao Jiayu, said, "We emphasize sourcing locally, which not only satisfies the needs of Chinese customers but also helps merchants and even peasants in remote areas from the supply side.”
Official CommentsJason Yu, GM of consultancy Kantar Worldpanel in China, said, "The competitive edge of Freshippo's X Whole Store is still embedded in its bespoke sets of solutions to meet local customer needs－represented by the half-day delivery and its sourcing strategy－while keeping customer sentiment as a marketplace that offers 'good value for money.”
Wall Street’s TakeRecently, Daiwa analyst John Choi reiterated a Buy rating on Alibaba but lowered the price target to $170 (43% upside potential) from $195.
Consensus among analysts is a Strong Buy based on 20 Buys versus three Holds. The average Alibaba stock forecast of $203.05 implies 70.8% upside potential from current levels.
Website TrafficTipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings, the world’s biggest website usage monitoring service, offers insight into Alibaba’s performance this quarter.
According to the tool, the Alibaba website recorded a 10.13% decrease in global visits in November compared to the same period last year. Also, a quarter-to-date comparison showed a decline of 3.76% compared to Q3 2021, while year-to-date website traffic growth stands at 1.67%.
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Chinese tech giant Alibaba Group Holding Ltd. (BABA) is considering selling its 30% stake in the social media company Weibo Corp. (WB), as per Bloomberg. Following the news, shares of BABA fell 2.4%, closing at $112.09, while WB shares slipped 3.5% and closed at $28.52 on December 29.
Alibaba In Talks with Shanghai Media GroupAccording to the report, Alibaba is in preliminary talks with the state-owned conglomerate Shanghai Media Group (SMG) to sell all of its 30% stake in Weibo.
Amid regulatory overhauls and increased scrutiny by the Chinese government, tech companies are finding ways to avoid attracting more attention. BABA’s step to offload its stake follows the news of Tencent Holdings Ltd's. (TCEHY) recent sell-off of its stake in tech company JD.com Inc. (JD).
The Chinese government is worried about the influence these media companies have on people and does not want any single company having a majority hold in any of the technology segments.
Since SMG is a state-owned company, it stands higher chances of getting Beijing's approval compared to any private acquirer. SMG also has a majority stake in Oriental Pearl Group Co. which has television stations, online portals along with a 20% stake in the Shanghai Disney Resort.
Weibo being an open platform for people to share their opinions and express their views, comes directly under the government’s radar. Shedding its stake from Weibo is in line with the government's directives to shed some of its stake from social media companies, as reported in March.
Consensus ViewRecently, Daiwa analyst John Choi lowered the price target on BABA stock to $170 (51.7% upside potential) from $195, while maintaining a Buy rating.
Choi believes the increased competition in the e-commerce market is a big risk for BABA in both its home market and abroad. BABA earnings for the third quarter of fiscal year 2021 are scheduled for February 2, 2022.
Overall, the stock commands a Strong Buy consensus rating based on 20 Buys and 3 Holds. The average Alibaba price target of $203.05 implies 81.2% upside potential to current levels. Shares have lost 53% over the past year.
Website TrafficTipRanks’ Website Traffic tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into BABA’s performance.
In November, Alibaba website traffic recorded a 10.13% year-over-year decline in monthly visits. However, year-to-date website traffic growth increased by 1.67% compared to the same period last year.
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