Alibaba Isn't Dead Money As Pessimism Peaks

seekingalpha05-14

Alibaba's upcoming earnings release on May 14 will be closely watched.Alibaba stock has outperformed the S&P 500 recently, suggesting BABA's pessimism has likely peaked.Alibaba's decision to reverse ...

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Sr1000
05-14
Sr1000
What time are earnings out?

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Robert Way Guess What?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0348783233.USD":"安联东方收入型 CI A Dis美元","LU1048596156.SGD":"Blackrock Asian Growth Leaders A2 SGD-H","LU0348788117.USD":"ALLIANZ EMERGING ASIA EQUITY \"A\" (USD) INC","LU0173614495.USD":"富达中国焦点A","LU0516422440.USD":"FULLERTON LUX FUNDS - ASIA FOCUS EQUITIES \"A\" (USD) ACC","BK1610":"ETF&股票定投概念","LU2039709279.SGD":"MANULIFE GF DRAGON GROWTH \"AA\" (SGDHDG) INC","LU0516422952.EUR":"FULLERTON LUX FUNDS - ASIA FOCUS EQUITIES \"I\" (EUR) ACC","BK4587":"ChatGPT概念","LU0823426480.USD":"法巴中国股票经典Dis","LU0130103400.USD":"Natixis Harris Associates Global Equity RA USD","LU0594300419.USD":"富达中国消费基金A","BK4559":"巴菲特持仓","LU0181495838.USD":"施罗德新兴亚洲A Acc","LU1880383366.USD":"东方汇理中国股票基金 A2 (C)","IE00B3M56506.USD":"NEUBERGER BERMAN EMERGING MARKETS EQUITY \"A\" (USD) ACC","LU0327786744.USD":"Janus Henderson Horizon China Opportunities A2 USD","LU0048597586.USD":"富达亚洲焦点A","LU0417516571.SGD":"Allianz Oriental Income Cl AT Acc SGD","LU0359201612.USD":"贝莱德中国基金A2","BK4585":"ETF&股票定投概念","LU0140636845.USD":"施罗德大中华区股票A Acc","LU0214875030.USD":"HSBC GIF BRIC EQUITY \"M2C\" (USD) ACC","LU0370786039.SGD":"Fidelity Greater China A-SGD","BK1249":"综合零售","LU0348735423.USD":"ALLIANZ HONG KONG EQUITY \"A\" (USD) INC","LU0348816934.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT\" (USD)","LU0348814723.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"A\" (USD) INC  NC","BK1608":"元宇宙概念","BK4550":"红杉资本持仓","LU0359202008.SGD":"Blackrock China Fund A2 SGD-H","BK4579":"人工智能","BK1586":"云计算","LU1267930227.SGD":"TEMPLETON GLOBAL BALANCED \"AS\" (SGD) ACC A"},"translate_title":"悲观情绪达到顶峰时，阿里巴巴-SW不是死钱","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{},"content_text":"Alibaba's upcoming earnings release on May 14 will be closely watched.Alibaba stock has outperformed the S&P 500 recently, suggesting BABA's pessimism has likely peaked.Alibaba's decision to reverse some restructuring plans is wise amid relatively weak valuations.I provide vital insights into the critical levels of BABA stock that investors should pay close attention to.With BABA rallying into its upcoming earnings release, all eyes will be on management to deliver.Guess What? Alibaba Stock Outperformed RecentlyAlibaba Group Holding Limited (NYSE:BABA) investors are waiting for its upcoming earnings release with bated breath. As a reminder, Alibaba's fourth fiscal-quarter earnings release is expected to be delivered on May 14. BABA stock has surged well above its January and April 2024 lows as renewed buying vigor returned to Chinese equities recently. Further buying momentum from institutional investors could drive BABA and its leading peers higher, as bullish investor positioning remains relatively light. Coupled with BABA stock's reasonable valuation and its fundamentally strong business model, it could attract value and momentum investors to add more exposure.I provided a bullish BABA update in my previous article in early March 2024. BABA has significantly outperformed the S&P 500 (SPX) (SPY) since then. As a result, it underscored the strength of BABA's consolidation thesis above its $65 support level. Consequently, BABA demonstrated its ability to clear that level decisively and staged a pivotal higher-low price structure relative to BABA's October 2022 lows ($55 level). Therefore, I assessed it augurs well for my thesis that the worst is likely over for Alibaba investors.BABA earnings estimates revisions (Seeking Alpha)Notwithstanding my optimism, I can also understand why some investors choose to hold on to their bearish thesis on BABA stock. BABA's fall from grace from its 2021 highs is justified, as Alibaba was hobbled by a stringent regulatory crackdown and structural weakness in its competitive moat.As seen above, Wall Street estimates on Alibaba's earnings have been revised downwards markedly over the past four years, as Alibaba's secular growth thesis disintegrated spectacularly. Despite that, the downward revisions have also normalized recently, suggesting the worst in Alibaba's earnings impact could be over. Consequently, I assessed BABA stock's recent buying fervor coinciding with improved optimism in China, as the market assessed potentially less onerous structural headwinds from here.Accordingly, the Chinese government seems ready to untether many of the structural impediments in China's real estate market. Observant investors are likely aware of the significant impact on China's consumer spending over the past few years. Consequently, Alibaba also suffered as the growth in its active consumer base neared maturity. Furthermore, Pinduoduo's (PDD) rapid share gains materialized as PDD scaled toward profitability. While Alibaba controls 40% of China's e-commerce market share, the damage has been inflicted, reflected in its earnings growth momentum.Alibaba Is Investing To Regain Growth MomentumAlibaba earnings growth estimates (TIKR)As a result, Alibaba's solid pre-COVID double-digit earnings growth cadence suffered immensely. Alibaba is expected to deliver a continued recovery at its upcoming FQ4 release with a 12% growth in adjusted EPS. However, Wall Street is likely concerned about the increased investments made to bolster Alibaba's competitive advantages in Cloud and e-commerce. Alibaba has bolstered its live-stream commerce capabilities to compete more effectively in a segment dominated by ByteDance (BDNCE). However, Alibaba's previous dominance in China's search-based e-commerce also faces more intense competition from PDD and ByteDance. As a result, I assessed that increased uncertainties over Alibaba's ability to regenerate more predictable earnings growth could hinder a more robust valuation re-rating as the market awaits further clarity from Alibaba management.Notwithstanding the heightened competition in China's core commerce business, international opportunities remain attractive. DBS Research expects Alibaba's international commerce business to deliver 40% YoY growth for FQ4, underscoring its solid growth momentum. However, I don't expect it to feature prominently in generating sustainable earnings growth for Alibaba in the near term. As a result, investors should anticipate negative EBITDA margins in the segment as Alibaba intensifies its investments to reignite investor confidence.While Alibaba co-founder Jack Ma's optimism is welcome, Alibaba needs to win back the market's confidence in its ability to compete more effectively against its rivals. Alibaba's increased focus on Taobao is expected to lower its monetization ability, affecting its profitability accretion. Therefore, I assessed Alibaba's need to grow its overseas business sustainably to lift investor confidence in its earnings growth prospects. However, with the business still expected to be in investment mode, investors must remain patient for its recovery thesis to play out.Management's decision to reverse its decision to spin off its cloud business and shelve Alibaba's Cainiao IPO is astute. With Chinese equities still in undervalued territory, Alibaba investors should remain patient for valuations to potentially improve further. Alibaba also repurchased more shares from its upgraded authorization, scooping up its undervalued shares to drive shareholder value. Moreover, Alibaba's dividend payout ratio of less than 12% for FY2024 suggests management has substantial flexibility to increase its payout. Underpinned by Alibaba's robust balance sheet and significant free cash flow margins (estimated FY25 FCF margin of 17%), BABA can afford to wait for more constructive opportunities in the future to consider unlocking value from these businesses if appropriate. Therefore, even though Alibaba's restructuring plans have changed markedly, investors have not been unduly worried.Is BABA Stock A Buy, Sell, Or Hold?BABA price chart (weekly, medium-term, adjusted for dividends) (TradingView)As seen above, BABA has surged well above its April lows ($65 level). I assessed that BABA buyers need to regain control of the $75 level decisively to attract momentum investors to return more decisively.To be clear, BABA is still in a downtrend bias, behooving caution. As a result, investors should monitor whether BABA can consolidate above the $75 zone over the next four to six weeks after it reports its FQ4 earnings.BABA's forward adjusted PEG ratio of 0.77 is more than 50% below its sector median. Therefore, the implied undervaluation for a fundamentally strong stock seems somewhat unreasonable, likely attributed to highly pessimistic sentiments linked to China's unpredictable geopolitical uncertainties.Despite that, investors mustn't ignore these headwinds, as they could materially affect investor confidence in returning to industry leaders like Alibaba. Notwithstanding my caution, I assessed that the worst in BABA's decline is likely behind us. As a result, BABA could be set up for a further rally toward the $100 zone if Alibaba management delivers a better-than-anticipated outlook at its upcoming earnings release.With that in mind, I assessed that maintaining a Strong Buy rating is appropriate as we move past BABA's worst battering since it topped out in late 2020. Long-term investors should consider buying more aggressively at subsequent pullbacks.Rating: Maintain Strong Buy.","kind":null,"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":0},"commentList":[{"id":305616704786672,"gmtCreate":1715647952456,"gmtModify":1715650524086,"author":{"id":"3575776646349900","authorId":"3575776646349900","name":"Sr1000","avatar":"https://static.tigerbbs.com/4c4bf423c2a52f4200f70536ef7c5b55","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"3575776646349900","idStr":"3575776646349900"},"htmlText":"What time are earnings out?","listText":"What time are earnings out?","text":"What time are earnings out?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/305616704786672","repostId":2435378313,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":3,"commentSize":1,"repostSize":1,"favoriteSize":0,"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":"4.29.2","shortVersion":"4.29.2","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/2435378313"}