Nasdaq BABA Alibaba

Alibaba has put an end to its ambitions of breaking into China’s entertainment industry and will be shutting down its Xiami Music app on February 5, according to CNN Business.

Alibaba (BABA) bought Xiami in 2013, hoping to establish itself as a leader in China’s music and entertainment market, however, CNN Business has reported that shortly after the acquisition, Chinese regulators began cracking down on music copyright infringements.

As a result, music streaming services in China were forced to remove more than two million unauthorized songs from their websites and apps over a three-week period in 2015, according to the National Copyright Administration, China's top copyright regulator.

The CNN Business report acknowledges that Alibaba also faced tough competition from entertainment giant Tencent Holdings, who established its own music entertainment division with popular streaming platforms Kugou Music, QQ Music and Kuwo Music.

According to data intelligence company, TalkingData, headquartered in Beijing, CNN Business has discovered that Xiami currently only owns around 2% of China's music streaming market.

Alibaba is once again facing regulatory challenges as its affiliate, Ant Group, is now facing a Chinese antitrust investigation and has been ordered by regulators to overhaul large parts of its operations.

Meanwhile, Jack Ma, Alibaba’s billionaire founder has reportedly disappeared, and hasn’t been seen in public for more than two months. (See BABA stock analysis on TipRanks)

Oppenheimer analyst Jason Helfstein assigned a Buy rating on the BABA stock 2 days ago and lowered his price target from $330 to $320. This implies upside potential of around 38%.

Helfstein reduced price target after Chinese regulators imposed five regulatory requirements on the company, which effectively lower Helfstein’s valuation of Ant Group from $200 billion to $150 billion. He also believes that the planned IPO of Ant Group now seems unlikely to go ahead in 2021.

Overall, consensus among analysts is a Strong Buy with all 19 analysts who have offered a rating on the stock in the past three months recommending a Buy. The average price target of $342.07 suggests upside potential of around 46% over the next 12 months.

Related News:
Moderna’s Covid-19 Vaccine Gets Green Light From Israel; Shares Gain
McDonald’s Craves a Larger Share Of the Chicken Sandwich Market – Report
ATN To Take Alaska Private In $332M Deal; Raymond James Sticks To Buy

2020 is gone and with 2021 at play, it’s out with the old and in with the new. However, for Alibaba (BABA) the well-worn axiom could yet have a whole new meaning, and might be interpreted as out with the old rules, in with the new regulations.

Shares had been under pressure in last year’s final stretch as the Chinese government announced it is investigating the e-commerce giant based on allegations the company is attempting to monopolize the market by coercing merchants to sign exclusivity agreements – thereby stifling competition.

The latest move followed an earlier crackdown, when the Chinese government put the brakes on Ant Financial’s (Alibaba’s sister company) planned record-breaking November IPO.

The regulators have now made a list of requirements which Ant must follow, so the IPO can get the go ahead. These include improving transactions' transparency and encouraging fair competition, setting up a regulated holding company for Ant’s financial services, procuring the required licenses for the individual credit rating business, polishing up on company governance, and a requirement for the asset securitization businesses to correct irregularities.

Oppenheimer analyst Jason Helfstein says the list suggests the “IPO seems unlikely in 2021.”

“It will likely take Ant some time to meet all five regulatory requirements (especially reserve capital requirement) and another one year or more to get ready for an IPO again,” the 5-star analyst opined. “In our view, Ant will focus on Digital Payments, while the growth of its consumer credit business (+59% y/y in 1H:20) should decelerate given the new capital requirement.”

As a result, Helfstein lowered Ant’s valuation from $200 billion to $150 billion.

Overall, the analyst believes BABA shares are “undervalued.” The analyst reiterates an Outperform (i.e. Buy) rating on BABA along with a $320 price target. Investors stand to pocket a 40% gain should the analyst’s thesis play out. (To watch Helfstein’s track record, click here)

The Oppenheimer analyst is not alone in claiming BABA remains undervalued. The overall sentiment is decidedly bullish; all current ratings - 19, in total - consider the stock a Buy. To this end, BABA's Strong Buy consensus rating is backed by a $342.07 average price target, suggesting gains of 50% over the next 12 months. (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.

Events have conspired to make 2020 a truly momentous year, with Covid-19 making it like no other in recent memory. While Alibaba (BABA) has managed to sail though the pandemic virtually unscathed, the year’s final stretch is proving to be more of a challenge on a completely different level.

First, the Chinese regulators halted sister company Ant Group’s slated record-breaking November IPO. And now the Chinese authorities have opened an investigation looking into Alibaba’s alleged monopolistic behavior. The probe revolves around allegations the company is stifling competition by coercing merchants to sign forced exclusivity agreements.

As a result, the stock has been on a bit of a roller coaster ride recently. While Truist analyst Youssef Squali notes the “lack of clarity” may impact the share price in the short term, recent events have done little to dampen his enthusiasm.

“We remain big fans of BABA and believe that barring a breakup (unlikely), BABA has reached a size/scale, which makes it a-must for shoppers/ merchants, even if "forced exclusivity" is eliminated,” the 5-star analyst noted.

“While altering BABA's business practices may be negative for the company short-term, we believe that consumers and merchants, if given a choice, will always gravitate towards the largest marketplaces with the most liquidity. With 881 million mobile monthly active users (as of September 2020), and the dominant share of ecommerce, we believe BABA has reached the "escape velocity" to continue to attract most merchants and most shoppers even if "picking one from the two" practice is eliminated,” Squali added.

That said, the uncertainty surrounding Ant’s IPO has brought about a reduction to Squali’s Ant valuation – which is cut back from $250 billion to $150 billion. The analyst also admits the latest regulatory scrutiny could be a “key risk for the stock in 2021.”

Squali also reminds investors that the practices Alibaba is being accused of are not exclusive to the e-commerce giant, but ones used by “many other leading Internet companies across ecommerce, food delivery and other online services.” Therefore, the regulators are “likely to use BABA as a way to regulate the online industry as a whole.”

All told, Squali reiterates a Buy rating on BABA shares and sticks to his $308 price target. Should this target be met in the year ahead, investors could be pocketing a gain of ~32%. (To watch Squali’s track record, click here)

Amongst Wall Street’s analyst crops, Squali is one of many BABA fans. The stock’s Strong Buy consensus rating is based on Buys only – 21, in total. The average price target is a bullish one, too; At $340.65, the projection is for upside of 46% over the next 12 months. (See BABA 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.