Alibaba (BABA) is scheduled to report results of its fourth fiscal quarter before the U.S. market opens on Thursday, May 26, with a conference call scheduled for 11:00 am ET. What to watch for:
CONTINUED CHALLENGES: Last week, Truist analyst Youssef Squali lowered the firm's price target on Alibaba to $132 from $180 but kept a Buy rating on the shares. The company's upcoming fourth quarter results and any short-term guidance are likely to show continued challenges across Alibaba's various segments as it struggles to deal with China's slowing economy amid tightened mobility, even though the government is reportedly looking into measures to re-open the economy and re-accelerate growth, the analyst told investors in a research note. Squali added, however, that Alibaba management is being more careful managing short-term expenses while maintaining long-term growth priorities.
Meanwhile, Baird analyst Colin Sebastian lowered the firm's price target on Alibaba to $144 from $160, while keeping an Outperform rating on the shares. The analyst recognized there is some optimism that the operating environment for Internet companies in China may be normalizing, and if that proves accurate, he believes there could be material upside in shares over the long-term. However, for now, he thinks management's tone could remain cautious with respect to near-term growth and margins.
SHANGHAI LOCKDOWN: In a research note ahead of quarterly results, Bank of America analyst Eddie Leung noted that as the lockdown in Shanghai was extended from April into May, which also created a spillover effect to supply chain and fulfillment in other regions, he expects the domestic retail marketplace business to decline year-over-year in second quarter of 2022/first quarter of 2023. However, the lockdown situation should be well-known to the market and reflected in share prices, he added, highlighting that there are limited disruptions to e-commerce delivery in other Tier-1 cities, despite some local restrictions. Leung also noted that Alibaba’s mobile app monthly users were still quite resilient in March and April. He expects the domestic retail marketplace business to return to growth in the second half of 2022. The analyst kept a Buy rating on the shares but lowered his price target to $175 from $190.
UNCERTAINTIES BEGINNING TO ABATE: Back on May 16, JPMorgan analyst Alex Yao double-upgraded Alibaba to Overweight from Underweight with a price target of $130, up from $75. The "significant uncertainties" facing the China internet sector are beginning to abate on the back of recent regulatory announcements, Yao told investors. The analyst expects "early-cycle sectors" such as digital entertainment, local service, and e-commerce "to be the first batch of outperformers." Late-cycle verticals such as travel and ads should lag the early-cycle ones by up to two quarters, says Yao. The analyst now has a more balanced view on the stocks.