Alibaba Group Holding Ltd - ADR shares ripped higher by 9.2% on Monday after the company was fined $2.8 billion by the Chinese government for violating antitrust laws.
The fine triggered a relief rally in Alibaba’s stock after CEO Daniel Zhang said the rule changes implemented on Alibaba in addition to the fine will not have a material impact on the company’s finances.
The fine seemingly brings to an end a difficult period for Alibaba investors that began when China launched an antitrust probe into the company in December. The probe was launched shortly after Alibaba founder Jack Ma made public comments criticizing China’s financial regulator. In addition to the regulatory crackdown on Alibaba, Chinese regulators also pulled the plug on the IPO of Alibaba affiliate Ant Group.
On Monday, Alibaba vice chairman Joe Tsai said he is not aware of any additional antitrust investigations and that the company is “pleased that we are able to put this matter behind us.”
Several analysts have weighed in on Alibaba since the fine was announced.
Eliminating Uncertainty:Raymond James analyst Aaron Kessler said removing the regulatory overhang is a positive for Alibaba investors.
“At the same time, we are lowering our estimates (FY22/23 EBITA decline by ~10%/9%) to reflect increased investments in grocery and local deals categories as Alibaba looks to expand its presence in lower-tier cities and with high-frequency purchase items,” Kessler wrote in a note.
Bank of America analyst Eddie Leung said the fine reduces regulatory uncertainty for Alibaba investors.
“As the innovative projects such as Internet of Things (IoT), location-based services and R&D lab together have seen stabilizing quarterly op loss of about RMB3-4b in the past two years, and Cainiao, Lazada and Hema have improving (negative) margins, Alibaba shifts its investment focus to its core retail eCommerce (eC), including tech and marketing services to help merchants, eC streaming, Taobao Deals that targets at less developed areas, and community groupbuy,” Leung wrote.
Investing In E-Commerce:KeyBanc analyst Hans Chung said Alibaba’s heavy investments in its core commerce business will drive accelerated gross merchandise volume and revenue growth but at lower margins.
“While we are lowering our margin forecast, we continue to view BABA as attractive from a LT perspective given its high moat in e-commerce and Alicloud potential,” Chung wrote.
Needham analyst Vincent Yu said the fine, while large, was on the low end of the expected range indicated by the regulatory guidelines.
“Most of Alibaba's merchants have already adopted multi-platform strategies, and a clear anti-monopoly guideline simply helps standardize the practice,” Yu said.
BABA Ratings And Price Targets: Raymond James has a Strong Buy rating and $330 target.
KeyBanc has an Overweight rating and $305 target.
Needham has Buy rating and $330 target.
Bank of America has a Buy rating and $301 target.
Alibaba traded around $243 at publication time.
