Why This Alibaba Analyst Is Bullish Despite Tempering Near-Term Expectations

Alibaba Group Holding Limited's (NYSE: BABA) travails are far from over, at least in the near term, although its long-term future is promising, an analyst at Raymond James said in a Wednesday note. 

The Alibaba Analyst: Aaron Kessler maintained an Outperform rating on Alibaba shares and reduced the price target from $220 to $200.

The Alibaba Takeaways: China's e-commerce growth has slowed further, from 8.7% in the September quarter to about 5.3% in the December quarter, Kessler said. 

A number of factors are leading to the slower sales growth, including a slowing real estate sector as well as continued COVID lockdowns that impact business activity, travel and less offline services, the analyst said. Citing the slowing e-commerce growth in China as well as continued impact from the pandemic, the analyst lowered his December quarter and fiscal year 2022 and 2023 estimates for Alibaba.

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Alibaba's China retail marketplace is likely to see stagnation in growth in the December quarter as opposed to RayJay's previous estimate for 3% year-over-year growth, Kessler said. The estimates for China commerce growth are also reduced from 35% to 17% given continued impact from lockdowns and tough comps due to the lapping of the Sun Art acquisition, he added. The analyst also modestly lowered his Alicloud growth estimate from 30% to 26%.

As such, RayJay lowered its December quarter revenue estimate by 5.4% to 244 billion yuan ($38.45 billion) and EBITA estimate by 5% to 45.5 billion yuan.

RayJay remains bullish on Alibaba given its expectation for continued solid long-term China e-commerce growth. The company is also likely to benefit from continued increased in take rate and good growth in newer areas, including China, international and local, the analyst said. 
Additionally, Alibaba's valuation, at six times estimated marketplace EPS estimate, is attractive, according to RayJay. 

BABA Price Action: Alibaba shares were rising 0.64% to $129.42 Wednesday morning. 

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