Based in China, Alibaba (BABA) runs a popular e-commerce platform where a wide variety of products are bought and sold. I am neutral on the title.
Between supply chain disruptions and COVID-19 related lockdowns, Chinese companies have come under tremendous pressure in 2022. The last thing they need is for the government to impose severe restrictions on tech-related businesses .
Still, it seems Beijing hasn’t made it easy for tech companies like Alibaba. Chinese government concerns about cybersecurity have reportedly resulted in policies that hamper revenue generation.
Still, as we’ll see, Alibaba has managed to grow its revenue and that’s a testament to the resilience of the business. On the other hand, a closer look at Alibaba’s financial statistics will reveal issues that need to be addressed.
On top of that, there has been some confusion over whether the IPO of Alibaba’s fintech subsidiary Ant Group will proceed. Overall, it will remain difficult for investors to navigate China’s regulatory environment and Alibaba’s stock is expected to falter for some time.
On TipRanks, BABA scores 9 out of 10 on the Smart Score spectrum. This indicates potential for the stock to outperform the broader market.
For some time now, potential investors have been waiting for the IPO of Alibaba co-founder Jack Ma’s Ant Group. Month after month, people have been waiting for positive news, but their patience is being tested.
Meanwhile, Alibaba stock continued to slide. In October 2020, Alibaba shares were trading above $300. More recently, the stock has been hovering near the $110 level.
The downward trend in Alibaba shares began before supply chain bottlenecks wreaked havoc on the global economy. This suggests that China’s strict regulations may have been the main headwind for Alibaba since late 2020 (although COVID-19 lockdowns have undoubtedly created problems as well).
Lately, developments surrounding Ant’s potential IPO have been making headlines, although there has been some confusion. First, on June 9, Reuters reported that “China’s central management has given a tentative green light to” Ant Group to relaunch its IPO in Shanghai and Hong Kong.
Sounds like great news for Ant and Alibaba, doesn’t it? Not so soon, the same Reuters report said Ant has no plans to relaunch its IPO. Additionally, Ant’s IPO would require guidance from the China Securities Regulatory Commission (CSRC) before it could proceed.
Apparently, regarding Ant’s IPO, CSRC clarified that it “did not conduct any valuation and research work in this regard.” However, the CSRC also said it supports “eligible platform companies to list domestically and internationally.”
These developments only make it harder to invest in Alibaba with confidence. As Jimmy Lee, CEO of The Wealth Consulting Group, put it: “I don’t think the crackdown is behind us for good, because the Chinese will do what they have to when they feel like it. Unfortunately, I think it’s as simple as that.
A big loss and no direction
All of the aforementioned headwinds are clearly weighing on Alibaba’s finances. Of course, the company is an e-commerce giant in China. However, there are simply too many problems going on for Alibaba to thrive as a business.
If potential investors are looking for advice on Alibaba’s earnings and profits, they will certainly be disappointed. Due to the “risks and uncertainties associated with COVID-19, which we are unable to control and difficult to predict”, Alibaba has chosen “not to provide financial guidance as we generally do. beginning of year” in the company’s most recent quarterly financial statements.
Looking at Alibaba’s performance in the first quarter of 2022, bulls and bears can choose their favorite statistics. In the bullish column is Alibaba’s modest revenue growth of 9%, from RMB 187.4 million in the first quarter of 2021 to RMB 204.05 million in the first quarter of 2022.
One could argue, however, that the bottom line is more important than revenue growth. In the case of Alibaba, the company’s net profit loss widened by 140%, from RMB 7.65 million in the first quarter of 2021 to RMB 18.36 million in the first quarter of 2022. , during the same period, Alibaba’s adjusted EBITDA decreased by 22% year-on-year, from RMB 29.9 million to RMB 23.37 million.
So even though Alibaba’s chief financial officer, Toby Xu, said his company “performed well this quarter,” the net numbers showed losses, not gains. Xu might say that Alibaba’s “continued investments
in strategic initiatives have generated promising growth momentum”, but the numbers tell a different story.
The Taking of Wall Street
According to TipRanks analyst rating consensus, BABA is a strong buy, based on 17 buy ratings and two hold ratings. Alibaba’s average price target is $159.84, implying an upside potential of 45.52%.
Once valued at $300, Alibaba’s stock is now on a long-term downtrend. Multiple challenges, including Beijing’s strict regulatory policies and COVID-19 related lockdowns, have made it difficult for Alibaba to thrive as a business and look attractive to investors.
Also, Ant’s IPO is in limbo at the moment, so don’t expect that to happen anytime soon. Frankly, it could take a while for Alibaba shares to recover, and the best policy now is to just watch them from a distance.
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