It has mostly been a downhill trip for Alibaba (BABA) stock since last fall. Beset by regulatory issues and confronted with a “remember whose boss” approach from the Chinese powers that be, last year’s strong post-pandemic growth has made way for a more subdued performance as reflected in the shares’ muted display over the past year.
Adding to the downbeat sentiment, Deutsche Bank’s Vitus Leung tells investors not to get hopes too high regarding the latest quarter, anticipating a “soft quarter ahead,” when Alibaba reports June quarter earnings in August, mostly due to “growing investment spend.”
Leung expects June-Q Adj EBITA to decline by 7% year-over-year to RMB42 billion, although the figure is slightly above the consensus estimate of RMB40 billion. The analyst sees revenue growing by 33% year-over-year, which is 4% below the Street’s forecast. Leung also calls for Cloud Adj EBITA to drop sequentially by 7.6%.
Apart from looking out for “active user numbers,” the analyst tells investors to keep an eye on investment spending.
“Strategic investments would be front-loaded, and mainly in the community marketplace segment, Taobao Deals, on merchant retentions,” Leung noted. “We expect BABA to follow through on its strategy of investing its incremental profits for longer-term growth.”
That said, on the back of a successful 618 promotion, CMR revenue is expected to exhibit a 15% year-over-year uptick. Other than CMR, Leung says a key segment to watch is New Retail, where investments have been made to “counter keen competition.” Ex-SunArt, revenue in the segment is anticipated to increase by 26% from the same period last year.
All in all, ahead of the print, Leung rates BABA shares a Buy along with a $281 price target. Investors could be sitting on gains of ~31%, should Leung's forecast play out over the coming months. (To watch Leung’s track record, click here)
Turning now to the rest of the Street, where most remain in the ecommerce giant’s corner. Barring 2 Holds, the 22 other recent reviews say Buy, all coalescing to a Strong Buy consensus rating. The average price target is a bullish one; at $290.82, the figure suggests upside of 26% over the coming months. (See Alibaba stock analysis 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 (BABA) and Tencent (TCEHY) are contemplating opening up their services and ending virtual barriers set against one another’s offerings. Citing unknown sources, the Wall Street Journal (WSJ) reports that the drastic changes are in response to mounting regulatory pressure on how big techs operate in China.
The ending of the virtual barriers between the two tech giants would mark a significant shift in the Chinese consumer internet market. The easing of barriers would also make life more convenient for consumers and help spur innovation and competition in the sector.
Currently, Alibaba is barred from the WeChat ecosystem. In addition, people cannot use Tencent’s payment system on the Alibaba platform. The Wall Street Journal reports that Alibaba could end up introducing Tencent’s WeChat on its e-commerce marketplaces as part of the new changes. (See Alibaba stock charts on TipRanks)
According to people familiar with the matter, the e-commerce giant could also add support for WeChat in the coming months, says the WSJ report. In return, Tencent could end up making it easier for listings on Alibaba's e-commerce site to appear on WeChat. Additionally, it could allow Alibaba’s services to have access to WeChat users through mini-programs.
Separately, Alibaba plans to add a new mobile payment service to its ecosystem developed by state-owned UnionPay. The addition is seen as an important peace offering, as the company has been entangled in a fierce tussle with regulators in China.
Deutsche Bank analyst Vitus Leung has reiterated a Buy rating on Alibaba but cut his price target to $281 from $282, implying 32.86% upside potential to current levels. The cut comes on the analyst remaining weary that the e-commerce giant’s June quarter earnings would be dominated by increased spending on investments. While the analyst expects the company to post a 33% year-over-year revenue growth, it could fall short of estimates by 4%.
Consensus among analysts is a Strong Buy based on 22 Buys and 2 Holds. The average Alibaba price target of $290.82 implies 37.50% upside potential to current levels.
BABA scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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