Alibaba: Better Days Ahead… but Still a While Away, Says JPMorgan

Shellshocked Alibaba (BABA) investors will be hoping 2022 bears little resemblance to 2021. Last year, shares shaved 50% off their value as the Chinese ecommerce giant’s stock got pummeled from all directions – from government crackdowns to a slowing economy, and the impact of an investment heavy schedule.

While J.P. Morgan’s Alex Yao believes better times are ahead, the analyst thinks they are a way off still, given a macro environment which has “deteriorated worse than expected.”

In November, China online physical goods sales increased by only 5% year-over-year, a “negative surprise against Alibaba’s 8% GMV growth during the Double 11 period.”

The near future doesn’t hold much hope of a turnaround either, says Yao. Following in the footsteps of the education sector in 2H21, recent weeks have seen downsizing at “multiple internet companies.” This in turn has put pressure on employment/consumption. The broader population’s “consumption sentiment” is also likely to remain low due to a declining property market.

Accordingly, Yao has become “more cautious” on China’s online consumption outlook and has reduced his 2021 December quarter Customer Management Revenue (CMR) growth estimate from up 5% year-over-year to negative 2%. “We forecast the negative CMR growth will end in 2022 Jun quarter,” Yao said, “Admittedly with low visibility.”

Policy stimulus aside, the analyst says that over the next few quarters, the most important share price driver of BABA stock will be “earnings revisions.” As a result, Yao believes that until the market identifies an “inflection point,” a worsening CMR outlook will make the stock “vulnerable.”

“While an earnings cut is, to some extent, anticipated by investors given the weak Nov 2021 online retail growth rate reported by NBS,” the analyst summed up, “We think the stock will continue to be under pressure in the near future, despite low valuations.”

Despite the cloudy forecast, Yao remains with the bulls. The JPMorgan analyst rates BABA shares an Overweight (i.e., Buy) along with a $180 price target. The figure implies ~42% upside from current levels.

Overall, the majority of Wall Street analysts remain on Alibaba’s side. Barring 3 skeptics, all 19 other recent reviews are positive, providing the stock with a Strong Buy consensus rating. Moreover, the average price target is a confident one; at $199.12, the figure suggests 12-month upside of ~57%.

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