Alibaba Faces Challenges, but Its Stock Is Still a Buy for the Long Term, Says Morgan Stanley

Alibaba’s (BABA) 4QF22 results beat expectations despite exhibiting the slowest quarterly revenue growth since the Chinese ecommerce giant went public in 2014.

Morgan Stanley analyst Gary Yu believes that based on weak consumption sentiment, following GMV’s (gross merchandise value) low-single digit year-over-year decline in the quarter, GMV is “unlikely to rebound in the near term.” Given logistical disruptions, the trend “worsened” into April, with a GMV drop in the low-teens %. For the June quarter’s remainder, Yu stays cautious around “consumption sentiment toward discretionary spending.” It will also be hard to match the success of last year’s 6.18 shopping festival given the strong promotion in 2021.

However, continued improvements to logistics, in addition to 6.18 promotions could still result in a “slight improvement” to GMV growth in May and June.

Despite the low-single digit (%) decline in GMV, in 4QF22, Customer Management Revenue (CMR) grew by 0.3% year-over-year. This suggests ad revenue was “more resilient (positive growth) than commission revenue” during March’s Covid disruptions.

“This is encouraging,” adds Yu, “because monetization pressure had been a main drag on CMR and market sentiment in CY21.”

However, as merchants are still struggling, during the current quarter Yu does not anticipate Alibaba will go after monetization in an aggressive manner.

Generally, while Yu thinks short-term growth will continue to be impacted by the macro uncertainty, while demand headwinds and competition “remain overhangs,” the narrowing of losses is positive for earnings growth.

In 4QF22, China Commerce adjusted EBITA declined by Rmb7.4 billion compared to the same period last year, an improvement on the Rmb14.2 billion loss in 3Q, which implies reduced losses sequentially from Taobao Deals (TD) and Taocaicai (TCC).

As the company is now putting a stronger emphasis on becoming more efficient, Yu expects this trend to continue.

All in all, Yu maintains an Overweight (i.e., Buy) rating, backed by a $140 price target. Should the figure be met, investors will be sitting on returns of ~46% a year from now. (To watch Yu’s track record, click here)

Most on the Street agree with Yu’s verdict. Barring one fence-sitter, all 16 other recent analyst reviews are positive, culminating in a Strong Buy consensus rating. The average price target is more bullish than Yu will allow; at $161.26, the figure makes room for 12-month growth of ~68%. (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.

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