What will it take for Alibaba (BABA) stock to rebound? Since its peak in the latter part of 2020, Alibaba has lost roughly two-thirds of its market cap, or about half a billion. The shares have plunged more than 72% since its 2020 peak, driven by China's increased regulatory scrutiny. But is it finally time bet on a recovery?
The Chinese e-commerce giant will report first quarter fiscal 2023 earnings results before the opening bell Thursday. Alibaba’s issues are now well-documented. Aside from concerns related to corporate governance, anticompetitive practices and its political standing in China, Alibaba is also facing down operating requirements imposed by the SAMR, which include providing subsidies to merchants and partners and forcing the company to increase its investments in the country, whether in the form of direct sales and marketing dollars or “strategic initiatives” investment.
The added pressure has impacted Alibaba not only in terms of slowing revenue growth, but SAMR’s anti-competition policies have also pressured Alibaba’s profit margins which have fallen by eleven percentage points from 27% in 2020 to 16% at the end of 2021. What’s more, the company’s leader Jack Ma had gone on a hiatus and had not been heard from until earlier this year. Recently, the stock was punished following a report that said Jack Ma plans to cede control of Ant Group.
Alibaba owns roughly one-third of Ant. It appears after a prolonged period of regulatory pressures, Ant may now want to distance itself from Alibaba. But it’s hard to ignore Alibaba’s stock price at these levels, especially when compared to its FAANG peers. Currently trading at a massive discount, investors are hoping that the bottom is near. But ahead of its quarterly results Thursday, investors shouldn’t expect any positive surprises, given the Covid-related lockdowns China has imposed over the past two quarters.
In the three months that ended June, Wall Street expects Hong Kong-based online retailer to earn $1.52 per share on revenue of $30.05 billion. This compares to the year-ago quarter when earnings came to $2.57 per share on revenue of $32.37 billion. For the full year, ending April 2023, earnings are projected to decline 5.4% year over year to $7.38 per share, while full-year revenue of $135.15 billion would rise 7% year over year.
Alibaba's massive scale and e-commerce ecosystem was once an asset that has now seemingly become a liability. To be sure, the company still has multiple streams of revenue which it can grow. However, the increased regulatory scrutiny from the Chinese government has placed a cap on any growth tailwinds it can muster. Accordingly, the market continues to slash the company’s revenue growth forecasts as it navigates through these headwinds.
These headwinds were noticeable in the fourth quarter. Although Q4 revenue of $30.4 billion beat analyst expectations, Alibaba's revenue increased just 8.9% year over year, marking the slowest pace for any quarter since the company went public in 2014.The adjusted EPS of $1.55 also beat estimates handily by 48 cents. However, several of the company’s business, including the cloud segment suffered from weakening demand.
CEO Daniel Zhang said during the conference call that new Covid cases had "impacted several major consumption and manufacturing centers.” Adding that the company had seen "a major recovery in local logistic capacity compared to April," and that "we believe operating stability and the sustainability during this period is the primary concern of all businesses."
The company remains confident, saying it expects to generate strong operating cash flow. For the stock to recover, on Thursday, investors will want to see growth reaccelerate. BABA must deliver top and bottom-line beat, upside guidance and positive commentary about growth prospects for the balance of fiscal 2023.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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