Alibaba: Buy The Undervalued Chinese Bull

seekingalpha2023-06-14

SummaryWe remain buy-rated on Alibaba; we believe the stock is undervalued and see an upside ahead toward 1H24.Alibaba’s March quarter results show improving profitability, but revenue growth remains ...

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Comments

Longs
2023-06-15
Longs
👌🏼🙏🏼
hphoa
2023-06-15
hphoa
Waiting
HeroSmurf
2023-06-14
HeroSmurf
Chiong.......!!!
Andrewinho
2023-06-14
Andrewinho
Always cheap!! 🤭🤭🤭
- hphoa:
  then buy more lo..lols

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We now expect the Chinese economic recovery to take longer to self-sustain.We expect Alibaba’s cloud division spin-off to drive growth, as the company's cloud business dominates the Chinese market.The stock price is volatile in the near term. Still, we recommend investors explore favorable entry points into the stock on pullbacks.We’re bullish on Alibaba (NYSE:BABA) stock post-4Q23 results. The company released its March quarter results with revenue of $30.32B, up slightly by 2% Y/Y, and Non-GAAP EPS at $1.56. The company beat estimates on top and bottom lines; still, the revenue dropped sequentially from $35.92B last quarter. While we were previously extremely constructive on China’s reopening, driving revenue growth for the company’s e-commerce business in 1H23, we now believe we might have gotten excited too early about Chinese demand rebounding in 1H23 and expect to see a delayed recovery in 2H23. Alibaba still derives the bulk of its revenues from its China commerce business, accounting for 65% of total revenues this quarter. However, China’s economic data for April was disappointing and exhibited a murky path to recovery from the pandemic lockdown environment; retail sales rose by 18.4%, lower than the forecast of 21%. We believe China is still in recovery, and such a massive comeback will take time. We’re still seeing inventory correction cycles underway on the semiconductor front from Chinese OEMs with Qorvo (QRVO) and Qualcomm (QCOM). We do expect, however, China's economic recovery is underway, as Macquarie’s Chief China Economist Larry Hu put it, “While the worst is behind us, the recovery is far from being self-sustaining.”We’ve been bullish on Alibaba stock since we first began covering it; the stock is up only 9% since we first published on it in late November. We expect profitability to improve toward 1H24 as the Chinese economy recovers; the company shows positive signs of improvement reporting adjusted EBITA, a non-GAAP measurement, surging by 60% Y/Y and non-GAAP net profit up 38% Y/Y. We see an upside toward 1H24 and recommend investors take advantage of the pullback and explore entry points at current levels.The following graph outlines our rating history on BABA.SeekingAlphaNear-term pain for long-term gainThe stock led Chinese stocks to trade lower post-4Q23 earning report and has continued to lose momentum since; the company dropped roughly 3% in early trading after reporting earnings and highlighting the board’s approval of the spin-off Cloud Intelligence Group. Investors are often hesitant about trading Chinese stocks. Still, we continue to believe Alibaba is an exception as the stock trades well below the U.S. stock peer group and holds a leading position in the expanding cloud market, with the global cloud computing market estimated to grow at a CAGR of 18.8% between 2022 and 2028.The company plans to spin off its cloud segment into a separate, publicly traded company while simultaneously facing pressure on its e-commerce revenue in China. While the stock performance doesn’t directly reflect it, we’re seeing positive signs of recovery. Alibaba is splitting into six units and restructuring costs toward achieving improved profitability; management announced cutting 7% of its cloud computing workforce as it prepares to go public with the cloud division. The spin-off is intended to be completed in 12 months since announced on the March earnings call; the company’s cloud business has thrived over the past few years, becoming the leading player by market share in Chinese markets and the second biggest player in Asia-Pacific behind Amazon (AMZN), according to Synergy Research Group. On the international level, Alibaba cloud is among the largest cloud players after Microsoft (MSFT), Amazon, and Alphabet (GOOG) (GOOGL). We’re seeing softer cloud/enterprise spending persisting toward 2H23 but expect the company to outperform in 2024 once tightening IT budgets ease alongside inflationary pressures.Valuation & Word on Wall StreetAlibaba stock is relatively cheap, trading at 21.34x P/E TTM basis as of today, trading well below the peer group; we believe the stock is undervalued for the growth prospects present. Wall Street shares our bullish sentiment on the stock. Of the 49 analysts covering the stock, 44 are buy-rated, and the remaining are sell-rated. The stock is currently priced at $86 per share. The median sell-side price target is $140, and the mean is $139, with a potential 62-63%.The following tables outline sell-side ratings and price targets for BABA.TSPWhat to do with the stockWe remain bullish on Alibaba as a value stock with improving profitability. We expect revenue growth to rebound in 2024 as the Chinese economic recovery is underway and headed for a bull market. We’re also constructive on the cloud division spin-off and demand tailwinds once cloud spending rebounds. We see attractive entry points at current levels and recommend investors buy the pullback.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":187431912775728,"gmtCreate":1686787552332,"gmtModify":1686787556225,"author":{"id":"4115290449563752","authorId":"4115290449563752","name":"Longs","avatar":"https://community-static.tradeup.com/news/824b5073731ab909a8d4e129caa8d995","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"4115290449563752","authorIdStr":"4115290449563752"},"htmlText":"👌🏼🙏🏼","listText":"👌🏼🙏🏼","text":"👌🏼🙏🏼","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/187431912775728","repostId":2343473056,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":187425780629768,"gmtCreate":1686785874482,"gmtModify":1686785878480,"author":{"id":"3578790486524477","authorId":"3578790486524477","name":"hphoa","avatar":"https://community-static.tradeup.com/news/28a11e936497493af7ee5ccdc32238a3","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3578790486524477","authorIdStr":"3578790486524477"},"htmlText":"Waiting","listText":"Waiting","text":"Waiting","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/187425780629768","repostId":2343473056,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":187268920840224,"gmtCreate":1686747757731,"gmtModify":1686747761557,"author":{"id":"3585642689958579","authorId":"3585642689958579","name":"HeroSmurf","avatar":"https://static.tigerbbs.com/6015b234d96461c6ef8db8d919ac3473","vip":1,"hat":"https://static.tigerbbs.com/0a8758340a08196056f8bc1e54805193","crmLevel":5,"crmLevelSwitch":1,"idStr":"3585642689958579","authorIdStr":"3585642689958579"},"htmlText":"Chiong.......!!!","listText":"Chiong.......!!!","text":"Chiong.......!!!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/187268920840224","repostId":2343473056,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":187269652095088,"gmtCreate":1686747750226,"gmtModify":1686747753835,"author":{"id":"3581563418944392","authorId":"3581563418944392","name":"Andrewinho","avatar":"https://static.tigerbbs.com/3127e2bc40ab23064a5187a00a63e19b","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581563418944392","authorIdStr":"3581563418944392"},"htmlText":"Always cheap!! 🤭🤭🤭","listText":"Always cheap!! 🤭🤭🤭","text":"Always cheap!! 🤭🤭🤭","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/187269652095088","repostId":2343473056,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":106417054,"gmtCreate":1686785899494,"gmtModify":1686785905757,"authorId":3578790486524477,"author":{"id":3578790486524477,"idStr":"3578790486524477","authorId":3578790486524477,"name":"hphoa","avatar":"https://community-static.tradeup.com/news/28a11e936497493af7ee5ccdc32238a3","vip":1,"currentWearingBadge":{"badgeId":"a83d7582f45846ffbccbce770ce65d84-1","templateUuid":"a83d7582f45846ffbccbce770ce65d84","name":"Real Trader","description":"Completed a transaction","bigImgUrl":"https://static.tigerbbs.com/2e08a1cc2087a1de93402c2c290fa65b","smallImgUrl":"https://static.tigerbbs.com/4504a6397ce1137932d56e5f4ce27166","grayImgUrl":"https://static.tigerbbs.com/4b22c79415b4cd6e3d8ebc4a0fa32604","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2021.12.21","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1100},"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":187269652095088,"type":1,"supId":0,"prevId":0,"content":"then buy more lo..<u>lols</u>","text":"then buy more lo..<u>lols</u>","html":"then buy more lo..<u>lols</u>"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":69,"commentSize":4,"repostSize":3,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2343473056"}