Alibaba (BABA) delivered weaker-than-expected Q2 2021 results characterized by revenue and earnings misses. Profit plunged in the quarter as the company continued to invest in key business areas of domestic consumption, globalization, and cloud computing. BABA shares fell 11.1% to close at $143.60 on November 18.
Alibaba is a Chinese company that operates online and mobile marketplaces for retail and wholesale trade. The company operates under four segments: Core Commerce, Cloud Computing; Digital Media, and Entertainment. (See Top Smart Score Stocks on TipRanks)
Q2 ResultsThe Chinese Internet giant delivered a record 29% year-over-year increase in revenue to $31.15 billion, missing consensus estimates of $32.05 billion. Revenue on international retail and wholesale commerce grew 34% year-over-year to $2.34 billion.
Cloud Computing revenue grew 33% year-over-year to $3.11 billion. The overall revenue increase was driven by the strong performance of the diversified business.
Alibaba delivered diluted earnings per ADS of $1.74, a 38% year-over-year decrease, missing the consensus estimate of $1.93.
The total number of active customers on the Alibaba Ecosystem rose to 1.24 billion for the 12 months ended September 30. The company now has about 953 million consumers in China and 285 million abroad. The company is on course to achieve its target of serving 2 billion consumers globally.
During the quarter, Alibaba repurchased 26.9 million ADS for about $5.15 billion.
Citing inherent risks and uncertainties, Alibaba has updated its guidance and now expects revenue to grow between 20% and 23% year-over-year for fiscal 2022.
Stock RatingWednesday, Raymond James analyst Aaron Kessler reiterated a Buy rating on the stock and lowered its price target to $220 from $240, implying 53.2% upside potential to current levels. According to the analyst, China e-commerce should register solid long-term growth, which should benefit Alibaba with an increase in take-rate. The analyst also expects the company to post solid growth in newer areas of Cloud, International, and Local.
Consensus among analysts is a Strong Buy based on 20 Buys, one Hold, and one Sell. The average Alibaba price target of $224.60 implies 56.4% upside potential to current levels.
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Alibaba (BABA) disappointed with its quarterly performance. However, that shouldn’t surprise much as expectations were already low ahead of the earnings. What surprised the most is the market’s reaction to its quarterly miss.
It’s worth noting that the shares of this Chinese tech giant stock closed 11.1% lower on Thursday, signifying that investors are losing patience on BABA stock.
TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks are offloading Alibaba stock. Notably, about 4% of these investors have decreased their exposure to BABA stock in the last 30 days.
Further, TipRanks’ Hedge Fund Trading Activity tool indicates that hedge fund managers have decreased their holdings in Alibaba stock by 1.1 million shares in the last quarter.
Alibaba stock has underperformed the Nasdaq composite index this year. Further, including yesterday’s decline, Alibaba stock is now down 38.8% on a year-to-date basis.
Analyst Weighs InWhile China’s crackdown on its tech companies and challenging macro and competitive environment weighed on Alibaba stock, Scott Devitt of Stifel Nicolaus maintained a Buy rating on BABA stock despite weak Q3 performance.
Devitt’s bullish outlook is centered around Alibaba’s leading market share in China’s online commerce, asset-light model, investments in growth (including cloud services, content, and multi-channel retail), and international expansion.
However, Devitt lowered his price target on Alibaba stock to $170 from $210 to account for the reduction in FY22 revenue guidance.
Citing “weakness in domestic consumption, Alibaba now expects a 20%-23% year-over-year increase in its revenues, lower than its previous growth guidance of 30%.
Wall Street’s TakeAlongside Devitt, the majority of analysts continue to show confidence in Alibaba stock. On TipRanks, Alibaba has received 20 Buys, one Hold, and one Sell for a Strong Buy consensus rating.
However, Alibaba scores 4 out of 10 from TipRanks’ Smart Score rating system, indicating that BABA stock could move in tandem with the broader market.
The average Alibaba price target of $226.85 implies 58% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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