Alibaba’s Crash Offers Investors An Enticing Buying Opportunity

19th November 2021
Alibaba’s Crash Offers Investors An Enticing Buying Opportunity

Alibaba‘s [ ] share price crashed over 11% following its latest quarterly earnings that failed to meet analysts’ expectations.

Although revenue rose 29% to CNY 200.69 billion (USD 31.4 billion) YoY, the figure fell short of the CNY 204.93 billion estimated.

EPS also disappointed, falling 38% to CNY 11.20 compared to CNY 12.36 expected.

Furthermore, the Chinese tech giant slashed revenue guidance for its current fiscal year to just 20-23% from 29.5% YoY growth to CNY 930 billion.

The earnings come just days after Alibaba announced stellar sales figures from Singles Day 2021. Sales for the company rose 14% from the year prior to a record CNY 540.3 billion in orders (USD 84.47 billion).

Alibaba’s so-called “disappointing” performance was largely the result of Beijing’s relentless tech crackdown over the past few months.

Regulators have been targeting Alibaba as part of Xi Jinping’s anti-monopoly and “common prosperity” wealth dispersion initiative.

Additionally, Alibaba co-founder Jack Ma has brought the entire company under the close watch of authorities after he criticised China’s banking practices.

In September, Chinese regulators expressed an interest in breaking up AliPay and introducing state-owned companies into the digital payment service as a majority stakeholder.

And, as recent as earlier this month, Alibaba along with 37 other Chinese apps faced new allegations of data violations.

With Beijing hot on its heels, Alibaba has struggled to keep shareholders (and analysts) happy, despite overwhelming consumer demand demonstrated on Singles Day.

Nonetheless, Alibaba is set to rebound once it conforms and complies with Beijing, as it inevitably will do.

At the time of writing, Alibaba’s stock price is USD 143.60. Across 41 analysts, the Chinese tech group has a 12-month price median target of USD 233.02, a high estimate of USD 335.22 and low estimate of USD 35.90.

The ludicrous estimate of USD 35.90 can immediately be ruled out – Alibaba has already endured the full wrath of the CCP, and whilst there might be a few more kinks that Beijing wants to iron out, it’s simply implausible that shareholders will see double figures, let alone USD 35.90.

Analysts’ high target of USD 335.22 is considered to be too optimistic. Alibaba certainly has solid growth potential but still being central under Beijing’s microscope will limit its ability to flourish fully.

Indeed, Alibaba investors still have a great deal to look forward to. Currently, Alibaba is China’s biggest cloud provider with 6% of the market. Not resting on its laurels, Alibaba is continuing to innovate in the segment.

“Looking ahead, we will continue to invest heavily into three growth engines of domestic consumption, globalisation, cloud computing and data intelligence”, CEO Daniel Zhang said on the earnings call.

Alibaba’s cloud computing segment grew 33% year-on-year to CNY 20 billion. Despite China’s crackdown, Alibaba still achieved remarkable growth. In fact, Alibaba’s revenue growth of 29% is still impressive, irrespective of what greedy Wall St analysts say. Furthermore, Alibaba is growing whilst remaining profitable.

With this in mind, the median 12-month price target of USD 233.02 is perhaps slightly optimistic but still the most realistic. This 62% rise would require Alibaba’s stock price to be towards its lowest – it’s flirting with its 52-week-low – and to have a smooth rebound. It may seem like a tough journey but it’s worth noting that this time last year, Alibaba’s stock price was at USD 258.85.

With a P/E ratio of just 17.6, coupled with inspiring rebound/growth potential, Alibaba feels like a compelling buy at its current price.

Last month, Charlie Munger’s firm doubled down on Alibaba at similar prices, considering the company to be undervalued.

Image credit: World Economic Forum

Written by Bread News Team
Newsletter subscription graphic
Insights,
  Freshly
Baked.

Get news and insights on the Asian markets that matter.

View our past Newsletter