Nasdaq BABA Alibaba

Alibaba (BABA) is currently under the Chinese regulators’ microscope, and founder Jack Ma’s fall from grace has been well-documented. However, none of these issues stopped the e-commerce giant from posting strong F3Q21 results on Tuesday.

In the quarter, Alibaba delivered revenue of $33.88 billion, a 37% year-over-year increase and coming in ahead of consensus by $530 million. FQ3 Non-GAAP EPADS of $3.38 beat the Street’s forecast by $0.13.

The company added 22 million customers to its Chinese online retail marketplaces to end December 2020 with 902 million mobile MAUs (monthly active users) and 779 million annual active consumers.

While growth in its fast-growing cloud computing segment slowed down a tad, it still increased by a healthy 50% year-over-year in what amounted to the cloud business’ first ever profitable quarter.

Despite the robust showing, the market’s reaction was generally subdued, most likely a reflection of the regulatory issues the company faces. However, the dual overhangs of an antimonopoly investigation and the uncertainty regarding the IPO of sister company Ant Financial are not enough to cast a shadow over Alibaba’s value proposition, says Truist analyst Youssef Squali.

“With 1 of 2 people in China on the platform (per mgmt), we believe BABA is an excellent position to continue to grow users and increase its wallet share from its existing base,” the 5-star analyst commented. “With Core Commerce showing healthy growth and margins, and with emerging segments showing improving profitability, we view mgt's aggressive stance on investments in new initiatives (Deals, Live, Short Video and Grocery) as appropriate even if likely to pressure margins S/M terms, given the compelling TAM/ growth opportunities ahead.”

Unsurprisingly, then, Squali reiterated a Buy rating on BABA shares and sticks to a $326 price target. Investors could be sitting on returns of 24%, should Squali’s target be met over the next 12 months. (To watch Squali’s track record, click here)

The rest of the Street almost unanimously agrees. While one analyst recently issued a Hold rating, all 22 other reviews say Buy. A Strong Buy consensus rating, is backed by a $325.11 average price target, suggesting room for 28% of share appreciation in the year ahead. (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.

Shares of Alibaba Group fell 3.9% on Feb. 2 after the e-commerce giant gave an update on its regulatory challenges at its fiscal 3Q earnings.

The company is facing an anti-monopoly investigation from the State Administration for Market Regulation in China. Alibaba (BABA) said that while it continues to co-operate with the Chinese authorities regarding this investigation, it has also established a special task force to conduct an internal review.

Alibaba also gave an update regarding the planned initial public offering (IPO) of its Ant Group, which was suspended in November. The company stated that Ant Group is in the process of developing a rectification plan that will be subject to regulatory scrutiny in China as there had been “significant changes in the Fintech regulatory environment”.

As a result, Ant Group’s IPO plans and business prospects remain considerably uncertain, the company said.

In the fiscal third quarter, Alibaba reported non-GAAP diluted EPS of $3.38, which were up by 21% year-on-year and came in ahead of consensus estimates of $3.26. Revenues jumped by 37% to $33.8 billion year-on-year, beating analysts’ expectations of $33.3 billion. (See Alibaba Group stock analysis on TipRanks)

Alibaba CFO Maggie Wu said, “We delivered another solid quarter...our strong free cash flow enabled us to further invest in strategic areas. We are pleased that our Alibaba Cloud business achieved positive adjusted EBITA during the quarter and Cainiao Network was operating cash flow positive. These progresses reflect our long-term approach to organically incubate and expand businesses from launch to profitability.”

Separately, the company also announced a plan to sell US dollar-denominated senior unsecured notes. The principal amount, maturity dates, interest rates and other terms of the notes have yet to be finalized, Alibaba said.

Following the earnings release, Mizuho Securities analyst James Lee raised the stock's price target from $270 to $285 and reiterated a Buy rating. Lee wrote in a note to investors, “Dec20 quarterly results were modestly better than expectations due to strong demand from Double 11 promotions. At the same time, the Cloud computing business reached profitability for the first time on strong growth. “

“However, margins will likely be under pressure due to increased investments in community-buying model, local delivery for non-food categories, and retail stores in lower-tier markets. We are maintaining FY23 Core EBITA estimate at RMB 319bn as we already factored in increased expenses.” the analyst added.

The rest of the Street is firmly bullish about the stock with a Strong Buy consensus rating. That’s based on 22 analysts recommending a Buy and 1 analyst suggesting a Hold. The average analyst price target of $325.11 implies 27.7% upside potential to current levels.

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