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Alibaba (BABA) Gains 4.6% in 6 Months: What's Next for Investors?
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Alibaba (BABA - Free Report) , commonly known as China’s e-commerce giant, has seen its stock price climb 4.6% in the past six months, underperforming the Zacks Internet-Commerce industry and Zacks Retail-Wholesale sector’s growth of 21.3% and 12.7%, respectively.
Macroeconomic headwinds, sluggish growth in China and various market challenges in different countries have been hitting the stock hard. BABA has lost 2.3% in the year-to-date period and is currently trading below the 50-day moving average.
Although Alibaba is the dominant e-commerce player in China, its global position remains under threat from bigwigs like Amazon (AMZN - Free Report) and eBay (EBAY - Free Report) .
BABA Trades Below 50-Day Average
Image Source: Zacks Investment Research
Nevertheless, the modest short-term gain in the stock reflects Alibaba’s resiliency amid the challenging macroeconomic environment. An expanding international commerce business, along with growing traction in its domestic e-commerce business, is primarily benefiting the stock. Strategic investments and a deepening focus on the innovation of products and services with the power of AI are playing a vital role in shaping the growth trajectory of the company.
Six-Month Price Performance
Image Source: Zacks Investment Research
Growing Momentum in Taobao & Tmall Drives Growth
Improvement in Taobao and Tmall Group, on the back of its three key investment areas — product supply, competitive pricing and quality service, remains a major positive for Alibaba’s domestic e-commerce business.
The solid execution of the user-first strategy by creating a system for brands, distributors and industrial belt factories is benefiting the company’s core business.
Alibaba is witnessing positive consumer feedback on the back of increasing investments in driving price competitiveness and elevating the user experience. This is evident from double-digit online GMV and order growth on a year-over-year basis in fourth-quarter fiscal 2024. The company experienced a substantial increase in the number of purchasers and purchase frequency in the quarter.
BABA is gearing up to introduce monetization mechanisms, which will align with new platform algorithms and product features in the second half of this fiscal year.
With these strategic investments, which are aimed at improving the overall shopping experience, Alibaba expects Taobao and Tmall Group’s GMV to gradually return to healthy growth in fiscal 2025.
International Commerce Strength Boosts Long-Term Prospects
Solid momentum in AliExpress, Trendyol and Alibaba.com has been benefiting the overseas e-commerce business significantly. Growing investments in key markets are helping improve the brand recognition of AliExpress and Trendyol.
Alibaba’s expanding cross-border retail and logistics operations are major positives.
Strength in AE Choice is driving growth within the business. Its initiative of upgrading the supply-chain service has resulted in the transition from the original platform business model to a supply-chain-driven platform marketplace model, which offers semi-consignment and full-consignment services.
Alibaba’s deepening focus on delivering localized and enhanced user experiences to different consumers worldwide remains noteworthy. The company is leveraging AI and other advanced technologies to improve efficiency in areas such as cross-platform product listing, product details, multilingual search, and targeted recommendations.
Alibaba is witnessing an increase in the number of small and medium-sized enterprises (SMEs) utilizing AI services on its platform. Around 17,000 SMEs have subscribed to the AI Business Assistant launched on Alibaba.com and millions of products have now been launched with AI.
Also, searches for AI-optimized products have increased 37%.
The recent introduction of Alibaba Guaranteed for global SMEs is another plus. Alibaba Guaranteed is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability.
The launch of an affordable logistics solution, namely Logistics Marketplace, for SMEs in the United States remains noteworthy.
Given these factors and initiatives, there remains a huge upward potential in the Alibaba International Digital Commerce Group (“AIDC”) business, which has turned out to be the key catalyst for Alibaba.
Alibaba’s strong balance sheet and robust cash flow generating ability are noteworthy. As of Mar 31, 2024, the company had a strong net cash position of RMB 446.5 billion or $61.8 billion. The free cash flow was RMB 15.4 billion. Solid cash flow generation allows Alibaba to return in the combination of share repurchase and dividend payments to its shareholders.
In the quarter ended Mar 31, 2024, it repurchased 524 million ordinary shares (the equivalent of 65 million ADSs) for $4.8 billion in the United States and Hong Kong markets under its share repurchase program.
The company’s board of directors has further approved an annual cash dividend of $1 per ADS for this year.
Conclusion
Although the near-term prospects of this Zacks Rank #3 (Hold) company remain foggy due to softness in China and macroeconomic challenges, including high interest rates and inflationary pressure, its long-term prospects are expected to benefit from strength in AIDC business, solid momentum in Taobao and Tmall, investments in price competitiveness, growing traction among SMEs and AI-driven product strategies. Its leading position in China’s e-commerce market also remains promising.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $138.63 billion, indicating 6.2% year-over-year growth. The consensus mark for fiscal 2025 earnings has been unchanged at $8.20 per share over the past 30 days.
Moreover, Alibaba is trading at a discount with a forward 12-month P/E of 8.93X compared with the industry’s 26.46X, which reflects a strong entry point for investors.
Image Source: Zacks Investment Research
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Alibaba (BABA) Gains 4.6% in 6 Months: What's Next for Investors?
Alibaba (BABA - Free Report) , commonly known as China’s e-commerce giant, has seen its stock price climb 4.6% in the past six months, underperforming the Zacks Internet-Commerce industry and Zacks Retail-Wholesale sector’s growth of 21.3% and 12.7%, respectively.
Macroeconomic headwinds, sluggish growth in China and various market challenges in different countries have been hitting the stock hard. BABA has lost 2.3% in the year-to-date period and is currently trading below the 50-day moving average.
Although Alibaba is the dominant e-commerce player in China, its global position remains under threat from bigwigs like Amazon (AMZN - Free Report) and eBay (EBAY - Free Report) .
BABA Trades Below 50-Day Average
Image Source: Zacks Investment Research
Nevertheless, the modest short-term gain in the stock reflects Alibaba’s resiliency amid the challenging macroeconomic environment. An expanding international commerce business, along with growing traction in its domestic e-commerce business, is primarily benefiting the stock. Strategic investments and a deepening focus on the innovation of products and services with the power of AI are playing a vital role in shaping the growth trajectory of the company.
Six-Month Price Performance
Image Source: Zacks Investment Research
Growing Momentum in Taobao & Tmall Drives Growth
Improvement in Taobao and Tmall Group, on the back of its three key investment areas — product supply, competitive pricing and quality service, remains a major positive for Alibaba’s domestic e-commerce business.
The solid execution of the user-first strategy by creating a system for brands, distributors and industrial belt factories is benefiting the company’s core business.
Alibaba is witnessing positive consumer feedback on the back of increasing investments in driving price competitiveness and elevating the user experience. This is evident from double-digit online GMV and order growth on a year-over-year basis in fourth-quarter fiscal 2024. The company experienced a substantial increase in the number of purchasers and purchase frequency in the quarter.
BABA is gearing up to introduce monetization mechanisms, which will align with
new platform algorithms and product features in the second half of this fiscal year.
With these strategic investments, which are aimed at improving the overall shopping experience, Alibaba expects Taobao and Tmall Group’s GMV to gradually return to healthy growth in fiscal 2025.
International Commerce Strength Boosts Long-Term Prospects
Solid momentum in AliExpress, Trendyol and Alibaba.com has been benefiting the overseas e-commerce business significantly. Growing investments in key markets are helping improve the brand recognition of AliExpress and Trendyol.
Alibaba’s expanding cross-border retail and logistics operations are major positives.
Strength in AE Choice is driving growth within the business. Its initiative of upgrading the supply-chain service has resulted in the transition from the original platform business model to a supply-chain-driven platform marketplace model, which offers semi-consignment and full-consignment services.
Alibaba’s deepening focus on delivering localized and enhanced user experiences to different consumers worldwide remains noteworthy. The company is leveraging AI and other advanced technologies to improve efficiency in areas such as cross-platform product listing, product details, multilingual search, and targeted recommendations.
Alibaba is witnessing an increase in the number of small and medium-sized enterprises (SMEs) utilizing AI services on its platform. Around 17,000 SMEs have subscribed to the AI Business Assistant launched on Alibaba.com and millions of products have now been launched with AI.
Also, searches for AI-optimized products have increased 37%.
The recent introduction of Alibaba Guaranteed for global SMEs is another plus. Alibaba Guaranteed is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability.
The launch of an affordable logistics solution, namely Logistics Marketplace, for SMEs in the United States remains noteworthy.
Given these factors and initiatives, there remains a huge upward potential in the Alibaba International Digital Commerce Group (“AIDC”) business, which has turned out to be the key catalyst for Alibaba.
Solid Liquidity Supports BABA’s Shareholder-Friendly Initiative
Alibaba’s strong balance sheet and robust cash flow generating ability are noteworthy. As of Mar 31, 2024, the company had a strong net cash position of RMB 446.5 billion or $61.8 billion. The free cash flow was RMB 15.4 billion. Solid cash flow generation allows Alibaba to return in the combination of share repurchase and dividend payments to its shareholders.
In the quarter ended Mar 31, 2024, it repurchased 524 million ordinary shares (the equivalent of 65 million ADSs) for $4.8 billion in the United States and Hong Kong markets under its share repurchase program.
The company’s board of directors has further approved an annual cash dividend of $1 per ADS for this year.
Conclusion
Although the near-term prospects of this Zacks Rank #3 (Hold) company remain foggy due to softness in China and macroeconomic challenges, including high interest rates and inflationary pressure, its long-term prospects are expected to benefit from strength in AIDC business, solid momentum in Taobao and Tmall, investments in price competitiveness, growing traction among SMEs and AI-driven product strategies. Its leading position in China’s e-commerce market also remains promising.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $138.63 billion, indicating 6.2% year-over-year growth. The consensus mark for fiscal 2025 earnings has been unchanged at $8.20 per share over the past 30 days.
Moreover, Alibaba is trading at a discount with a forward 12-month P/E of 8.93X compared with the industry’s 26.46X, which reflects a strong entry point for investors.
Image Source: Zacks Investment Research