The Chinese economy’s growth has been decelerating and the recent Covid-driven lockdowns have further impacted growth. China Commerce is particularly feeling the effect and that in turn is impacting Alibaba (BABA).
The company is set to post F4Q22 earnings on Thursday, May 26, and Truist’s top analyst Youssef Squali thinks that any short-term guidance “will likely show continued challenges across BABA’s various segments.”
“While the government is reportedly looking into measures to re-open the economy/re-accelerate growth, lack of visibility into details/timing and potential success of such moves makes it hard to predict when BABA could see a resumption in its own growth,” the 5-star analyst further explained. “In the meantime, management is being more careful managing ST expenses while maintaining LT growth priorities.”
Overall, there’s no change to Squali revenue forecast of 200.7 billion RMB (up 7% year-over-year) compared to consensus at 199 billion RMB. But during a period when growth is “materially decelerating,” Squali has reduced EBITA estimates on “sustained high expenses” which mostly correlate to organic investments in newer initiatives.
These organic investment areas include “Taobao Deals, Taobao Live, short video, New Retail, Taobao Grocery and Community Group Buying (CGB), targeted particularly in lower tier cities.”
Squali now sees EBITA of 14 billion RMB (suggesting a 7% margin) while the consensus is looking for 15 billion RMB. Squali also lowered his FY23 EBITA estimate – the figure drops from the previous 146 billion RMB to 133 billion RMB.
The new numbers are based on a variety of trends observed during the quarter; monthly NBS reports have shown growth to be slowing down – especially during March and April – while the zero-tolerance policy intended to fend off Covid has “exacerbated an already softening economy” and has severely impacted people’s mobility.
All told, Squali keeps a Buy rating on BABA shares although the price target is lowered from $180 to $132. Investors could be sitting on gains of 51%, should Squali’s forecast play out over the coming months. (To watch Squali’s track record, click here)
Overall, despite Alibaba’s issues, the Street keeps a bullish outlook for the Chinese ecommerce giant; the stock boasts a Strong Buy consensus rating based on a unanimous 18 Buys. Moreover, at $168.79, the average price target makes room for one-year gains of ~94%. (See Alibaba stock forecast on TipRanks)
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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.
