Can Alibaba Stock Recover in these Uncertain Times?

The Chinese government’s decision to ease its regulatory crackdown on big tech stocks, and its efforts to boost the economy through stimulus measures, was expected to revive Chinese tech stocks. However, the recently imposed fines on some Chinese companies, including Alibaba (NYSE: BABA) have reignited fears of regulatory pressures. Also, the renewed threat of lockdowns or curbs to control the spread of COVID-19 could drag down stocks of Alibaba and other Chinese companies. Meanwhile, most of the Wall Street analysts covering it continue to be bullish on Alibaba stock.

Alibaba is the leading e-commerce player in China and also has a lucrative cloud computing business. The U.S. listed shares of Alibaba are down about 8% year-to-date.

Alibaba in the Spotlight Again

Recently, Chinese market regulators fined Alibaba, Tencent (TCEHY), and other large firms for failing to comply with anti-monopoly rules regarding the disclosure of transactions. Of the 28 deals identified by the regulatory authority, five involved units of Alibaba. BABA shares fell in reaction to the news of these fines as investors are worried about further regulatory actions.

Meanwhile, growing competition in the Chinese e-commerce space, macro headwinds, and supply chain disruptions due to lockdowns in China have put pressure on Alibaba’s performance. For the fourth quarter of Fiscal 2022 (ended March 31, 2022), Alibaba reported its slowest quarterly revenue growth since it went public in 2014.

Amid a tough business backdrop, Alibaba is implementing several cost control measures to enhance its margins. The company is optimizing its investments on its growth businesses, and identifying additional monetization opportunities that would generate sustainable, high-quality revenue.

Wall Street’s Take

Last week, Goldman Sachs analyst Ronald Keung increased his price target for Alibaba stock to $167 from $163 and maintained a Buy rating, as part of a broader research note on the Chinese internet space. Keung is optimistic on the development of a “multi-fly wheel platform” following both offensive and defensive measures taken by the company to combat the growing rivalry in China’s e-commerce market.

Keung adds that Alibaba’s upsized share buyback plan reflects management’s optimism about the company’s long-term, sustainable growth potential, and value creation.

Benchmark analyst Fawne Jiang increased the price target for Alibaba stock to $205 from $200 and reiterated a Buy rating. Jiang’s channel checks suggested that Alibaba, like the broader industry, was hit by COVID-19 lockdowns and logistics issues. The company faced substantial gross merchandise value growth pressure in April and May, but experienced notable improvement in June.

Overall, Alibaba boasts a Strong Buy consensus rating based on 20 Buys, two Holds, and one Sell. The average Alibaba price target of $153.73 implies 40.91% upside potential from current levels.

An Optimistic Outlook

The recent fines imposed by China’s antitrust regulator on Alibaba and certain other firms have again raised concerns about regulatory pressures.  Further, the threat of lockdowns in China has also re-emerged.

However, despite certain near-term pressures, the majority of Wall Street analysts continue to be bullish on Alibaba. They expect better operational performance in the quarters ahead based on the company’s position in the e-commerce market and its growing cloud computing business.  

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