Long-term opportunity remains, says top analyst


Russia’s invasion of Ukraine already has ramifications for the current world order and will resonate far beyond the region. In addition to the geopolitical implications, finance, trade and commerce will all feel the impact.

Will Ali Baba (BABA) feel it too? After all, Russia is the biggest market in Alibaba’s AliExpress segment.

Maybe so, but given that the business conducted on AliExpress Russia is not consolidated in Alibaba’s results, Colin Sebastian of Baird thinks the exposure to Russia/Ukraine is “pretty modest”. “We assume there is a risk to the valuation of this joint venture,” continued the 5-star analyst, “although it is still a relatively minor investment for the company.”

In any case, Sebastian thinks the Chinese e-commerce giant has other issues to deal with. Recent F3Q results “reflect the slowing macro/retail environment and intense competition impacting core retail growth.” Along with the pandemic headwinds, these have led to a slowdown in retail sales and e-commerce in China.

Given the impact of subsidies and fee waivers given to merchants, despite positive GMV growth, CMR (customer management revenue) fell by around 1% compared to the same period last year last, while slower growth in the apparel and general merchandise categories also played a role in the disappointing performance. Additionally, the company sees competition intensifying both in established markets and in more rural areas.

To counter these developments, monetization has been put “on the back burner,” with the company focusing on “customer growth as well as increasing engagement.”

At the same time, international segment order growth remained robust (+18%), the company is making inroads with local services (order growth of 22%) and, importantly, says Sebastian, Alibaba “shows more progress with community shopping and Taobao”. Offers, which help counter competing platforms.

And there’s enough evidence to show that the company can meet today’s challenges. “The biggest takeaway is that Alibaba remains focused on long-term growth despite near-term macroeconomic and competitive headwinds,” Sebastian summed up, “And we continue to see significant value in the platform of enterprise technology-driven cloud and e-commerce services.”

Therefore, the analyst maintains an outperform (i.e. buy) rating, although the price target is reduced from $180 to $160, implying that the stock has a margin of growth of approximately 52% over the coming year. (To see Sebastian’s track record, Click here)

Overall, 23 analysts have issued BABA ratings over the past 3 months, with 21 saying Buy while 2 recommending Hold, all resulting in a Strong Buy consensus rating. The average price target stands at $178.53 and, if achieved, investors are looking at 12-month returns of 69%. (See Alibaba’s stock predictions on TipRanks)

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Disclaimer: Opinions expressed in this article are solely those of the featured analyst. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.


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