To The Moon

Bad news first: JPMorgan analyst Alex Yao reduced his bank's forecast for Alibaba's revenue in calendar years 2022 and 2023, shaving off 2% this year, and 5% next. Yao also cut his "non-GAAP EPS estimates" for Alibaba by 9% in 2022, and by a whopping 22% in 2023, reflecting "more cautious assumptions of cost optimization efforts and the de-leveraging of business scale." GAAP earnings got revised lower by an even harsher 15% (in 2022) and 31% (in 2023).

As the analyst explained, Alibaba's near-term results face "downside risks to... consensus expectation for March quarter and June quarter results" in 2022, as "the impact from the COVID-19 resurgence negatively affects the domestic ecommerce operation. The resurgence of COVID-19 cases forced Shanghai to go into a full lockdown on 1 April," and Shanghai alone accounts for about 4% of Alibaba's retail sales in China. Shenzhen was also locked down for "a couple of weeks in March," as were "several other provinces/cities."

Combined, Yao expects these lockdowns will subtract several percentage points of sales growth from Alibaba's March and April results. As a result, JPMorgan is now expecting that sales will not grow, but rather shrink year over year in the first half of calendar year 2022, falling 4% in the March quarter and 2% in the June quarter. And looking out a bit further, the analyst forecasts no more than 1% and 4% sales growth in the September and December quarters, respectively.

Nor will Alibaba's other, non-e-commerce business lines fare any better. To the contrary, Yao sees "downside risks for most of Alibaba's business segments' growth outlook in the coming two quarters," with lockdowns disrupting "local consumer services," the Russia-Ukraine war messing up logistics and depressing international business, and finally cloud computing growth suffering from weak demand in the year's first half. Growth will be good enough to keep revenues still rising -- 18% company-wide in 2022, and 11% in 2023 -- but earnings are expected to decline in both years.

So that's the bad news. Now the good news:

Yao raised his price target on Alibaba stock from $65 a share to $75 a share, despite lowering expectations for both sales and earnings for the year. Citing "improving market sentiment after China's Vice Premier Liu He gave a pro economy growth speech in mid-March," and also reduced (U.S.) delisting risk in light of "the newly announced consultation paper on overseas listing regulations by China SEC," Yao sees investors as likely willing to pay as much as 11 times even reduced 2022 earnings to own a piece of Alibaba today, versus a previous prediction of 7x his former estimate of what Alibaba might earn.

However, even if Yao is right, and Alibaba is worth $75 instead of just $65 a share, Alibaba stock is still overpriced by ~28%. Accordingly, Yao is sticking with his Underweight (i.e. Sell) rating on Alibaba stock.

Yao, however, is the only bear in the picture right now, with the stock displaying a Strong Buy consensus rating. The 12-month average price target stands at $176.03, marking ~70% upside potential from current levels.$Alibaba(BABA)$ $Alibaba(09988)$

source：TipRanks