Alibaba Shares Surge With Buyback, Signs of Covid Easing
Alibaba Group Holding Ltd. shares rose after the Chinese e-commerce giant unveiled a new buyback plan and suggested Covid-19 restrictions are beginning to ease enough to benefit its business.
Alibaba (NYSE:BABA) will announce their quarterly results this week. While macro challenges and their impact on consumption remain a concern some are expecting the company to be good long term investment.
We look at Alibaba today at a time when many analysts believe the market has hit the bottom an the growing good will sentiment between the USA and China.
Some interesting facts.
What does Alibaba do :
Alibaba is the world’s largest retailer and e-commerce company and is on the list of largest Internet companies.
Launch year: 1999
Company Name: Alibaba Group
Headquarters: Hangzhou, China
Founder(s) : Jack Ma
Three main sites: Taobao, Tmall, and Alibaba.com
Total Number of Alibaba employees: 117,600
Number of monthly active users: 755 million
At the end of 2021, Alibaba had 882M buyers in China.
On Singles’ Day Festival 2021, Chinese customers spent $84.54 billion buying from Alibaba’s online shopping platforms.
In 2021, Alibaba’s ecosystem had 1.28 billion active customers worldwide.
(Source: Alibaba Group)
So why did the stock drop??
Month on month chart.
As with many listed companies, the business was effected by the market correction and the uncertainty surrounding post pandemic economies, the slow down of global economic growth the increase in interest rates due to hyper inflation and the knock on effect of the Ukraine- Russian war.
Alibaba shares had previously fallen after US regulators added the stock to a growing list of Chinese firms that might be kicked off Wall Street if US auditors couldn't inspect their financial statements.
While many buyers in the past year have been burned repeatedly when it comes to investing in China tech stocks, belief is growing that the worst of the private-sector crackdown is over. Beijing’s plans to ease a raft of virus restrictions in a significant pivot away from Covid Zero and a sweeping package to rescue the nation’s beleaguered property market are also adding to the optimism. This all bears well for Baba.
What to expect for the future.
Alibaba is expected to report a 4.3% revenue increase for the quarter, along with the first margin gain since 2019. Investors will also be watching for updates on its effort to lower expenses along with guidance on further share buybacks. Shares rose as much as 4.6% on Monday morning in New York.
“Net income could beat Street consensus, given the cost-cutting measures and that the company has suspended lots of investments in some initiatives,” said Julia Pan, Shanghai-based analyst at UOB Kay Hian. She added that the company’s business should improve next month after the new quarantine rules are in place.
The consumption recovery is also looking more steady. Although Alibaba didn’t disclose full sales results for its signature Singles’ Day shopping festival for the first time, China’s biggest e-commerce company said gross merchandise value was in line with last year’s performance despite Covid headwinds. Ad sales, which had been hammered by lockdowns over the past year, may finally rebound as reopening measures lift the economy.
“Despite a more challenging economic backdrop, we expect this year’s shoppers to be equally exuberant,” said Nicholas Yeo, head of China equities at abrdn. “Disposable incomes are climbing across the nation and this affluence is driving growth in aspirational areas.”
To be sure, Alibaba faces broader challenges with the days of breakneck growth seen as over for the industry. Worries about the impact of US chip export legislation on the company’s cloud business are weighing on sentiment, while China’s full exit from Covid Zero is expected to be a long haul.
Yet sentiment is turning more positive, and it’s not just for Alibaba. According to options data, bearish bets are also easing for peers including JD.com and Tencent Holdings Ltd. Analysts are also expecting their earnings results to meet or even beat expectations.
“Valuations of tech and innovation stocks in China look very attractive compared to historical level and global peers,” said Minyue Liu, investment specialist for Asian and Greater China equities at BNP Paribas Asset Management. “The risk-reward is more on the reward side at current valuation level.”
Is it a buy?
On TipRanks, BABA stock is a Strong Buy. It has nine unanimous Buy recommendations. Moreover, given the slump in BABA stock over the past year, analysts’ price target of $137.78 implies 94.7% upside potential.
This is from Forbes.
"Warren Buffett has roughly $145 billion in cash on hand at Berkshire Hathaway and while there are plenty of stocks in the market he may consider, there is one that’s moved to the top of the food chain through a Buffett-inspired quant model I run at Validea. The stock, Alibaba Group Holding (BABA), is one of only four stocks in our entire database of thousands of companies that scores 100% according to the model. Here are the fundamental reasons why Alibaba could make a lot of sense for Buffett and Berkshire."
When to buy?
US technology and internet stocks staged a massive rally last week, with the Nasdaq 100 Index climbing 8.8% in its biggest advance since November 2020. The rally came as inflation cooled in October by more than forecast, fueling optimism the Federal Reserve will be less aggressive in raising interest rates.
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