Alibaba investors were taken on a wild, ugly ride in 2021. Could 2022 be different?
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Tech stocks have been tumbling. In a surprise twist, Alibaba is doing remarkably well.
Investors wouldn’t be blamed for thinking the recent selloff in technology stocks could only add more weight to the weakened shoulders of Alibaba (ticker: BABA). After all, Alibaba lost 49% of its value last year, with investors in the Chinese tech giant staring down a crushing 2021 marked by regulatory concerns and fears over growth. By comparison, the Nasdaq 100 index—which tracks some of the largest U.S.-listed tech stocks—surged almost 27% over the same period.
But Alibaba’s Hong-Kong listed shares (ticker: 9988.H.K.) surged 5.7% Thursday. Its U.S.-listed stock was on track to open 2.5% higher, building on gains from Wednesday that brought its five-day climb to almost 8%.
Not bad. Especially since the picture for Alibaba has changed little of late.
In fact, analysts at investment banking firm Benchmark hit the company with a price target cut, lowering their estimate on Thursday to $235. As recently as mid-December, Benchmark had a target price of $245, according to FactSet.
Blame Chinese consumer data. China’s National Bureau of Statistics recently reported slowing retail sales growth of consumer goods in October and November, Benchmark analysts Fawne Jiang and Long Lin highlighted, indicating muted consumer spending. This matches up with their own analysis that December may have seen further softness in consumer demand, amid macro headwinds and a resurgence in Covid-19 cases.
In turn, this could put pressure on Alibaba’s revenue growth, especially relative to its peers, because the company has a higher exposure to products in the discretionary spending category, like cosmetics.
The Benchmark analysts have slashed their predictions for revenue in the current quarter—the third of Alibaba’s 2022 fiscal year—in four areas as a result.
The first area on the chopping block is the customer management revenue (CMR) segment, which comes from services like marketing on its platforms and is a crucial source of sales for the company. Jiang and Lin see CMR growth being just 1% year over year, down from a previous estimate of 4%.
The analysts also see China commerce revenue growth being just 16%, down from 23%, with cloud revenue growth being 20%—down from previous guidance of 31%. International retail growth will likely also be hit as a result of some tax issues in the Eurozone and foreign exchange impact, they said.
Yet there are reasons to remain upbeat. Benchmark held on to their Buy rating for Alibaba stock, and their price target implies 94% upside from Wednesday’s closing price.
“China commerce has become increasingly competitive,” said Jiang and Lin. “Alibaba is at the early innings of a fundamental turnaround for its core CMR, which could remain a show-me story in the near term.”
Benchmark sees CMR recovering as the macro and regulatory environment improves, and believes the market is ignoring the value of some of Alibaba’s key assets, such as those in cloud, logistics, and international and local services.
“As such we believe the risk/reward is substantially positively biased for long-term investors,” Jiang and Lin said.
Write to Jack Denton at [email protected]
