Alibaba (BABA) stock has been under consistent pressure over the past year, falling some 37%. The shares are down 28% year to date, trailing the 24% rise in the S&P 500 index. And if you’ve bought BABA stock in the last three, six or nine months, you’re down 13%, 24% and 37%, respectively. But has the stock finally bottomed? Is it time to bet on a recovery?
The Chinese e-commerce giant will report second quarter fiscal 2022 earnings results before the opening bell Thursday. China’s crackdowns on anti-monopoly, cybersecurity oversight and antitrust practices has put Alibaba’s collective businesses not only in the crosshairs of significant regulatory risk, but also presented strong impediments to the company’s growth. But now could be a good time to buy, according to Barclays analyst Jiong Shao who listed Alibaba as a "top pick."
“Chinese tech companies are too important to be ignored,” Shao argued. Saying the company’s sheer size, despite some market share loss to competitors in recent years, makes it "one of the most compelling valuations.” 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.
Shao notes that "the market appears to be giving almost no value to both its cloud business and to its stake in Ant [Group]. He initiated the stock as Overweight with a price target of $275 per share, suggesting 66% upside from current levels. Investors are, nonetheless, struggling to reconcile whether Alibaba's attractive valuation is low enough to offset these various risks? Having fallen from their peak of $319 to a recent 52-week low of $138, BABA stock trades at a massive discount to its FAANG peers. After an arduous year, Alibaba has tons of ground to make up.
In the three months that ended October, Wall Street expects Hong Kong-based online retailer to earn $1.93 per share on revenue of $32.07 billion. This compares to the year-ago quarter when earnings came to $2.78 per share on revenue of $23.48 billion. For the full year, ending May 2022, earnings are projected to decline 7.6% year over year to $9.29 per share, while full-year revenue of $141.68 billion would rise 27.9% year over year.
With the the stock currently trading 40% from its 52-week high, the company on Thursday must give investors a reason to believe it is ready to turn the corner amid all of the uncertainty. In that vein, optimism surrounding last week’s Singles Day shopping event could be an early catalyst as the company still controls some two-thirds of China’s e-commerce market through Taobao and Tmall. The company will need the additional boost in revenue.
In the first quarter, Alibaba’s $31.8 billion in revenue fell short of expectations of $32.9 billion. It was its first revenue miss in more than two years. Despite rising 34%, revenue growth slowed considerably from the year prior. While core commerce revenue rose 35%, that rate of growth was much slower than the 70% revenue gain Alibaba in Q4. But it wasn’t all bad news. Not only did BABA surpassed analysts' estimates for a profit of $2.27 per share, its international retail revenue rose 54%, to $1.7 billion, while cloud unit, Aliyun climbed 29% to $2.5 billion.
On Thursday investors will want to see if this growth is sustainable. To dispel concerns, BABA on Thursday must deliver top and bottom-line beat, upside guidance and positive commentary about growth prospects for the balance of 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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