Finance

Hope for Alibaba: Signs of Recovery as Fundamentals Stabilize

25 September 2024

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Zaker Adham

Summary

Shares of Alibaba Group Holding Ltd. are beginning to show signs of recovery as the company’s fundamentals stabilize. Currently trading around $85, Alibaba's stock is down 72.40% from its peak of $308 in 2020, but recent earnings reports indicate a potential turnaround.

In its second-quarter results, Alibaba reported a revenue increase of 5.70% year over year, totaling $130.75 billion, alongside core earnings stabilizing at $16.64 billion. These figures suggest the company may be poised for long-term growth, even amid ongoing macroeconomic challenges and stiff competition.

Despite facing significant pressures, Alibaba’s valuation remains notably low. The company has been actively returning capital to its shareholders through buybacks and dividends, and analysts foresee a potential price target of $150 per share, representing an upside of nearly 80%.

Historically, one would expect a company experiencing such a downturn to see a corresponding decline in its fundamentals. However, Alibaba's recent performance suggests otherwise. As factors such as currency exchange fluctuations and competitive pressures start to ease, both revenue and earnings show signs of stabilization. For instance, the company's revenue from its cloud services has surged, indicating a robust growth trajectory.

While challenges persist, including the threat of increased competition from rivals like JD.com and Pinduoduo, the overall sentiment surrounding Alibaba's future is optimistic. Analysts contend that the company's current valuation—trading at 6.48 times enterprise value over adjusted EBITDA—does not accurately reflect its quality and growth potential.

However, macroeconomic conditions in China could pose a risk. With consumer demand softening and retail sales growth lagging behind expectations, Alibaba could feel the impact. Recent data shows Chinese retail sales grew only 2.10% year-over-year, falling short of anticipated growth rates.

In conclusion, while the broader economic landscape remains challenging, Alibaba’s improved fundamentals and commitment to returning capital to shareholders signal that there may indeed be light at the end of the tunnel for this tech giant.

This article does not constitute legal or financial advice. For tailored guidance, please consult a financial advisor.