Nasdaq BABA Alibaba

Ahead of Alibaba’s (BABA) F1Q22 earnings, the common thread running through analysts’ projections was that the ecommerce giant’s investments would weigh on the quarter’s display. And so it proved to be.

The company delivered a mixed set of results that are adding more pressure to shares, already under the cosh by constant battles with the Chinese authorities.

Although there was a beat on the bottom-line as Non-GAAP EPS of CNY16.60 came ahead of the Street’s forecast by CNY2.31, the company failed to meet expectations on the top-line. BABA generated revenue of CNY205.74 billion ($31.8 billion), amounting to a 33.8% year-over-year uptick but missing the estimates by CNY2.93 billion.

As expected, says Truist’s Youssef Squali, there was a declaration for core commerce (CC) revenue, which makes up ~88% of the company’s total sales.

This segment's revenue hit CNY180.2 billion, lower than the CNY183.2 billion consensus estimate and amounting to a 35% year-over-year increase vs. the 72% growth in F4Q21, “albeit against more challenging comps as the company lapped the onset of the pandemic in China last quarter.”

CC segment EBITA notched CNY45.6 billion, amounting to a 25% margin, better than the 19% margin in F4Q21 but below the 38% delivered in F1Q21.

“We view the Y/Y decline in segment margin as a result of management's on-going commitment to investing incremental profit back into growth areas within the business, and consistent with its messaging,” said the 5-star analyst, although the level of investment was above Squaii’s and the Street’s forecast.

In fact, the whole set of results is a reflection of the company’s “continuous efforts to aggressively invest to onboard more active buyers.” In FY22, Alibaba hopes these will surpass 1 billion, which will help the company “capture greater share of wallet across its portfolio of existing/emerging platforms.”

And, overall, Squali thinks Alibaba is on track to do just that.

“With Core Commerce sustaining healthy growth/margins, investments both in products (Community Buying, Taobao Deals, Local, Lazada), and in merchants should help protect BABA's core franchise amidst intense competition while seeding the next growth drivers, given the compelling TAM/growth ahead,” the analyst summed up.

To this end, Squali rates BABA shares a Buy along with a $260 price target. Shares could appreciate by 32%, should the analyst’s thesis play out in the coming months. (To watch Squali’s track record, click here)

There are currently 25 BABA reviews on record, of which 2 are to Hold, 1 to Sell, while the rest, like Squali, recommend to Buy, all culminating in a Strong Buy consensus rating. Moreover, the average price target remains a bullish one; at $275.30, the objective could yield returns of 40% in the year ahead. (See Alibaba stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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.

Ahead of Alibaba’s (BABA) F1Q22 earnings, the common thread running through analysts’ projections was that the ecommerce giant’s investments would weigh on the quarter’s display. And so it proved to be.

The company delivered a mixed set of results that are adding more pressure to shares, already under the cosh by constant battles with the Chinese authorities.

Although there was a beat on the bottom-line as Non-GAAP EPS of CNY16.60 came ahead of the Street’s forecast by CNY2.31, the company failed to meet expectations on the top-line. BABA generated revenue of CNY205.74 billion ($31.8 billion), amounting to a 33.8% year-over-year uptick but missing the estimates by CNY2.93 billion.

As expected, says Truist’s Youssef Squali, there was a declaration for core commerce (CC) revenue, which makes up ~88% of the company’s total sales.

This segment's revenue hit CNY180.2 billion, lower than the CNY183.2 billion consensus estimate and amounting to a 35% year-over-year increase vs. the 72% growth in F4Q21, “albeit against more challenging comps as the company lapped the onset of the pandemic in China last quarter.”

CC segment EBITA notched CNY45.6 billion, amounting to a 25% margin, better than the 19% margin in F4Q21 but below the 38% delivered in F1Q21.

“We view the Y/Y decline in segment margin as a result of management's on-going commitment to investing incremental profit back into growth areas within the business, and consistent with its messaging,” said the 5-star analyst, although the level of investment was above Squaii’s and the Street’s forecast.

In fact, the whole set of results is a reflection of the company’s “continuous efforts to aggressively invest to onboard more active buyers.” In FY22, Alibaba hopes these will surpass 1 billion, which will help the company “capture greater share of wallet across its portfolio of existing/emerging platforms.”

And, overall, Squali thinks Alibaba is on track to do just that.

“With Core Commerce sustaining healthy growth/margins, investments both in products (Community Buying, Taobao Deals, Local, Lazada), and in merchants should help protect BABA's core franchise amidst intense competition while seeding the next growth drivers, given the compelling TAM/growth ahead,” the analyst summed up.

To this end, Squali rates BABA shares a Buy along with a $260 price target. Shares could appreciate by 32%, should the analyst’s thesis play out in the coming months. (To watch Squali’s track record, click here)

There are currently 25 BABA reviews on record, of which 2 are to Hold, 1 to Sell, while the rest, like Squali, recommend to Buy, all culminating in a Strong Buy consensus rating. Moreover, the average price target remains a bullish one; at $275.30, the objective could yield returns of 40% in the year ahead. (See Alibaba stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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.

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Ecommerce took off as a result of the COVID-19 pandemic. This provided a boon to most online retailers, but even the most prolific gains in market share and industry expansion must cool off eventually, even if for just a moment. The world’s largest ecommerce retailer by gross merchandise value (GMV), Alibaba Group (BABA) reported its June-ending quarter earnings this past Tuesday, to mixed results. Despite clear expansion across multiple sectors, several Wall Street firms had overestimated revenue growth, with many lowering their price targets in response. (See Alibaba stock charts on TipRanks)  

Let’s take a look at how some of these analysts have responded to the earnings results.  

Nomura Holdings, Inc.

Remaining optimistic, Jialong Shi of Nomura Holdings, Inc. wrote that “despite the unexciting results, we think BABA shares are likely to remain more resilient than peers driven by attractive valuation and abundant share buyback.” 

The four-star analyst reiterated his Buy rating on the stock, and conservatively lowered his price target to $251 from $258. He added that Alibaba’s total revenue was 1% above Nomura’s expectations. On the downside, Shi noted that some subsidiaries have had their 10% tax status claim rejected, and as such will see higher rates of taxation in the near term.  

Furthermore, the recent regulatory headwinds could instead materialize into drivers for upside, if investor concerns are not validated by Chinese governmental action.  

Deutsche Bank

Vitus Leung of Deutsche Bank is enthused that the H1 deceleration has been digested by investors, and now the bulls can look towards H2 for well-deserved upside.  

He reiterated a Buy rating on BABA, and assigned a new price target of $269 from a former $281.  

Stating that now “growth is in second gear,” Leung elaborated that the missed earnings were due to the boost in share repurchases and aggressive investment in new initiatives, thus hurting cash flow.  

The analyst added that year-over-year, revenue growth was 34%, which was 2% below Wall Street consensus estimates.  

He, too, was less concerned about the regulatory disruptions and instead was bullish on the money spent on BABA’s investment for “sub-apps as those serve various demographics while creating stickiness for higher order frequency.” 

The Benchmark Company

Fawne Jiang of the Benchmark Company was undeterred by Alibaba’s mixed results, stating, “While regulatory tightening will remain a predominant overhang on the sector in the near term, we believe BABA stock, trading at a historical trough multiple, is attractive to long-term investors.” 

Jiang maintained his Buy rating for BABA, and declared a price target of $277.  

Expecting a H2 acceleration in BABA’s return on investment in subsidiary ventures such as Taobao Deals, local services and Lazada, the analyst is confident that the ecommerce giant will keep pace with the growth seen by the general Chinese online retail industry.  

Needham & Company

Even more bullish is Vincent Yu of Needham & Company, who dismissed the mixed earnings results as the fault of a hard comparison from the previous quarter and COVID-19. Citing “robust growth” from “new initiatives,” the analyst expects a stronger H2 for Alibaba, although losses incurred will arise on the balance sheet to come.  

Yu reiterated a Buy rating on the stock, and provided a price target of $330.  

The analyst believes that “Alibaba is navigating the current regulatory environment well and is poised to grow in several business areas such as ride-hailing and food delivery.” He also expects that any new regulation in the industry will help remove smaller competition for BABA. 

TipRanks' Analytics

On TipRanks, BABA has an analyst rating consensus of Strong Buy, based on 22 Buy and 2 Hold ratings, and 1 Sell rating. The average Alibaba Group price target is $278.61, reflecting a potential 12-month upside of 40.3%. At the time of writing, the share price is $198.70.  

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.

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