Chinese internet giant Alibaba (NYSE: BABA) has struggled to accelerate its growth over the past year. The deceleration in China’s economy, heightened competitive activity, and the resurgent virus led to a slowdown in its growth and, in turn, its stock price. Furthermore, regulatory headwinds remained a drag.
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Given the challenges, the American Depositary Receipt of the Chinese internet giant Alibaba has corrected about 60% from its 52-week high.
Now What?
Alibaba’s revenue growth has decelerated sequentially over the past several quarters as economic weakness and competition weighed on the commerce business. Meanwhile, the softening of demand, slowing economic activities, and the negative impact of the COVID-19 pandemic took a toll on its cloud business.
In response to its latest financial results, Mizuho Securities analyst James Lee stated, “the negative macro factors drove slower CMR revenue growth, and Cloud revenue faced a slowdown from regulation and mobility restrictions.”
Looking ahead, Lee expects Alibaba’s growth to remain subdued due to the “uncertainty of lockdown and mobility restrictions.” Further, margins will likely remain under pressure due to increased investments.
However, the analyst remains upbeat on Alibaba stock and expects “government initiatives to reopen the economy and implement supportive policies” to drive growth in the second half of 2022.
Including Lee, 17 analysts have recommended a Buy on BABA stock. Meanwhile, a couple of analysts have Hold recommendations. Further, due to the recent pullback, the average Alibaba price target of $159.84 implies 71.5% upside potential to current levels.
Bottom Line
The weak macro environment in China, higher competition, and COVID-led lockdowns may hurt Alibaba’s financials in the short term.
However, positive developments like the Chinese government’s intent to stabilize the economy, Alibaba’s accelerated share buyback plan, a growing active consumer base, international expansion, and investments in cloud infrastructure, provide a solid platform for long-term growth.
Also, BABA stock has positive indicators from hedge fund managers who have increased their holdings in the last quarter.
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