Alibaba (BABA) stock has been under consistent pressure, falling more than 50% since the start of the year, driven by a combination of factors. Aside from fears over the company’s corporate governance, there remains some concerns that the company’s rocky political standing in China will impede future growth. Is now a good time to buy?
The Chinese e-commerce giant will report first quarter fiscal 2022 earnings results before the opening bell Tuesday. China’s crackdowns on anti-monopoly, cybersecurity oversight and antitrust puts Alibaba’s collective businesses in the crosshairs of significant regulatory risk. And this is despite the company paying a record-breaking fine of $2.8 billion for violating anti-monopoly rules. Meanwhile, the suspension of Ant Group's IPO, Alibaba’s payments unit which was anticipated to be the world’s largest stock market debut at $34.4 billion, has deflated any optimism for additional growth.
Investors are, nonetheless, struggling to reconcile whether Alibaba's attractive valuation is low enough to offset these various risks. Meanwhile, Warren Buffett’s longtime partner Charlie Munger seems to think so, announcing in April he took a $37 million position in Alibaba. Having fallen from their peak of $319 per share to a recent 52-week low of $179, BABA stock trades at a massive discount to its FAANG peers which enjoy premium valuations. This is even though Alibaba has demonstrated high-growth, high-profitability characteristics that are consistent with the likes of Amazon (AMZN) and Google (GOOG , GOOGL).
Alibaba is a proven winner thanks to its e-commerce ecosystem which offers multiple streams of revenue thanks to to $1.2 trillion in gross merchandise volume. Not only does that level of scale, including hundreds of millions of daily users, generates consistent growth rates, it insulates the company economic downturns. With the the stock currently trading at an all-time high low valuation, the company on Tuesday must give investors a reason to believe the stock has significantly more room to run and can remain on a sustained path to recovery.
In the three months that ended June, Wall Street expects Hong Kong-based online retailer to earn $2.24 per share on revenue of $32.54 billion. This compares to the year-ago quarter when earnings came to $2.21 per share on revenue of $22.23 billion. For the full year, ending May, earnings are projected to decline 3.5% year over year to $9.70 per share, while full-year revenue of $143.51 billion would rise 30% year over year.
Amid this uncertainty, there are other aspects of BABA’s business that should continue to grow, albeit at a slower pace. The Chinese economy is on a path towards revitalization, meaning Alibaba profits will also continue to grow as well. This is because the company still controls some two-thirds of China’s e-commerce market through Taobao and Tmall. In the fourth quarter BABA's annual active consumers was 811 million, rising by 32 million on a year-over-year basis. Meanwhile, its mobile monthly active users reached 925 million in March, an increase of 23 million over December 2020.
The company’s cloud unit, Aliyun, which rose 50% year over year in fiscal 2021, is an area where Alibaba is still making significant investments. On Tuesday investors will want to see if this growth is sustainable. To dispel concerns, BABA on Tuesday must deliver top and bottom-line beat, upside guidance and positive commentary about growth prospects for fiscal 2022.
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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