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Alibaba (BABA) Dips 7.2% in a Year: Should Investors Hold or Fold?
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Alibaba (BABA - Free Report) has seen its stock price decrease 7.2% in a year, significantly underperforming the Zacks Internet-Commerce industry, the broader retail sector and the S&P 500 index’s growth of 22.5%, 19.6% and 26.1%, respectively, in the same time frame.
This drop is now prompting investors to question whether to maintain their positions or consider selling their shares in the leading e-commerce company in China. The decrease comes amid broader market volatility and certain challenges being faced by China. The declining export volume in the country is weighing heavily on the company’s China e-commerce companies.
Investors should carefully weigh Alibaba’s growth prospects against the challenges it faces. Sluggish consumer discretionary spending, mounting operational expenses and the significant capital expenditure required to stay competitive in both e-commerce and cloud markets are factors to consider.
One-Year Price Performance
Image Source: Zacks Investment Research
Nevertheless, Alibaba’s strong international commerce business is noteworthy. Growing investments and efforts to leverage the power of Artificial Intelligence (AI) for product innovation are positives. The company’s expanding footprint in the booming cloud computing space is another tailwind.
Alibaba’s cheap valuation is another plus.
Currently, BABA is trading at a discount with a forward 12-month P/S of 1.47X compared with the industry’s 1.73X.
Image Source: Zacks Investment Research
Strong International Commerce Business Aids Prospects
Solid momentum in the Alibaba International Digital Commerce Group (AIDC) business, which is comprised of Lazada, AliExpress, Trendyol, Alibaba.com and other businesses operating in the international retail and wholesale markets, is shaping the company’s growth trajectory.
In first-quarter fiscal 2025, this segment generated RMB 29.29 billion ($4.03 billion) in revenues, which grew 32% from the year-ago quarter and accounted for 12% of the total revenues.
The International commerce retail business generated revenues of RMB 23.7 billion ($3.3 billion), which rose 38% year over year and accounted for 80.9% of international revenues. Meanwhile, the International commerce wholesale business generated revenues of RMB 5.6 billion ($771 million), which increased 12% on a year-over-year basis and accounted for 19.1% of international revenues.
The retail business is primarily benefiting from the growing momentum in AliExpress’ Choice and improving monetization efforts.
Alibaba expanded the supplier base on the AliExpress platform, which now includes local merchants, in order to enhance its product offerings and meet local consumers’ demands seamlessly.
Recently, the company teamed up with Magazine Luiza, a leading retailer in Brazil, per which the latter will open and operate a storefront on AliExpress and vice versa.
It is also boosting investments in the Trendyol platform to increase mindshare in select markets in Europe and the Gulf region.
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.
Growing momentum in Alibaba Guaranteed, which is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability, is another plus.
Given these factors, the AIDC business holds upward potential and is expected to drive its long-term prospects.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $139.8 billion, indicating 7.1% year-over-year growth.
Macro Challenges & Mounting Expenses are Headwinds for BABA
Macroeconomic challenges, including high interest rates and inflationary pressure, are acting as major headwinds.
Weak market conditions and declining export volume in China are weighing heavily on Alibaba’s domestic retail business.
Escalating tensions between the United States and China are also concerning. Although this geo-political tech war is not directly related to the e-commerce industry, its residual effect does not bode well for Alibaba and other similar companies.
In addition, increasing expenses are hurting the margin expansion of Alibaba. In first-quarter fiscal 2025, its sales and marketing, general and administrative, and product development expenses expanded 180 basis points (bps), 240 bps and 100 bps year over year, respectively.
Consequently, its operating income was down 15% year over year and the operating margin contracted 300 bps from the year-ago quarter.
The company’s growing investments associated with the latest initiatives and rising expenses to offer price-competitive products are expected to keep its margins under pressure, which, in turn, will hurt its bottom line.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $8.20 per share, indicating a year-over-year fall of 4.9%. The figure has been unchanged over the past 30 days.
Image Source: Zacks Investment Research
Stiff Competition Acts as a Concern
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) .
Also, growth of BABA in the global cloud market has been significantly hindered due to rising competition from the leading cloud players, namely Amazon, Microsoft and Alphabet’s (GOOGL - Free Report) Google.
Conclusion
Given the uncertainties surrounding the prospects of Alibaba, along with mounting expenses, declining margins and intensifying competition in both e-commerce and cloud markets, selling the BABA stock appears to be a prudent move at present.
Currently, Alibaba carries a Zacks Rank #4 (Sell) at present.
Image: Bigstock
Alibaba (BABA) Dips 7.2% in a Year: Should Investors Hold or Fold?
Alibaba (BABA - Free Report) has seen its stock price decrease 7.2% in a year, significantly underperforming the Zacks Internet-Commerce industry, the broader retail sector and the S&P 500 index’s growth of 22.5%, 19.6% and 26.1%, respectively, in the same time frame.
This drop is now prompting investors to question whether to maintain their positions or consider selling their shares in the leading e-commerce company in China. The decrease comes amid broader market volatility and certain challenges being faced by China. The declining export volume in the country is weighing heavily on the company’s China e-commerce companies.
Investors should carefully weigh Alibaba’s growth prospects against the challenges it faces. Sluggish consumer discretionary spending, mounting operational expenses and the significant capital expenditure required to stay competitive in both e-commerce and cloud markets are factors to consider.
One-Year Price Performance
Image Source: Zacks Investment Research
Nevertheless, Alibaba’s strong international commerce business is noteworthy. Growing investments and efforts to leverage the power of Artificial Intelligence (AI) for product innovation are positives. The company’s expanding footprint in the booming cloud computing space is another tailwind.
Alibaba’s cheap valuation is another plus.
Currently, BABA is trading at a discount with a forward 12-month P/S of 1.47X compared with the industry’s 1.73X.
Image Source: Zacks Investment Research
Strong International Commerce Business Aids Prospects
Solid momentum in the Alibaba International Digital Commerce Group (AIDC) business, which is comprised of Lazada, AliExpress, Trendyol, Alibaba.com and other businesses operating in the international retail and wholesale markets, is shaping the company’s growth trajectory.
In first-quarter fiscal 2025, this segment generated RMB 29.29 billion ($4.03 billion) in revenues, which grew 32% from the year-ago quarter and accounted for 12% of the total revenues.
The International commerce retail business generated revenues of RMB 23.7 billion ($3.3 billion), which rose 38% year over year and accounted for 80.9% of international revenues. Meanwhile, the International commerce wholesale business generated revenues of RMB 5.6 billion ($771 million), which increased 12% on a year-over-year basis and accounted for 19.1% of international revenues.
The retail business is primarily benefiting from the growing momentum in AliExpress’ Choice and improving monetization efforts.
Alibaba expanded the supplier base on the AliExpress platform, which now includes local merchants, in order to enhance its product offerings and meet local consumers’ demands seamlessly.
Recently, the company teamed up with Magazine Luiza, a leading retailer in Brazil, per which the latter will open and operate a storefront on AliExpress and vice versa.
It is also boosting investments in the Trendyol platform to increase mindshare in select markets in Europe and the Gulf region.
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.
Growing momentum in Alibaba Guaranteed, which is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability, is another plus.
Given these factors, the AIDC business holds upward potential and is expected to drive its long-term prospects.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $139.8 billion, indicating 7.1% year-over-year growth.
Macro Challenges & Mounting Expenses are Headwinds for BABA
Macroeconomic challenges, including high interest rates and inflationary pressure, are acting as major headwinds.
Weak market conditions and declining export volume in China are weighing heavily on Alibaba’s domestic retail business.
Escalating tensions between the United States and China are also concerning. Although this geo-political tech war is not directly related to the e-commerce industry, its residual effect does not bode well for Alibaba and other similar companies.
In addition, increasing expenses are hurting the margin expansion of Alibaba. In first-quarter fiscal 2025, its sales and marketing, general and administrative, and product development expenses expanded 180 basis points (bps), 240 bps and 100 bps year over year, respectively.
Consequently, its operating income was down 15% year over year and the operating margin contracted 300 bps from the year-ago quarter.
The company’s growing investments associated with the latest initiatives and rising expenses to offer price-competitive products are expected to keep its margins under pressure, which, in turn, will hurt its bottom line.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $8.20 per share, indicating a year-over-year fall of 4.9%. The figure has been unchanged over the past 30 days.
Image Source: Zacks Investment Research
Stiff Competition Acts as a Concern
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) .
Also, growth of BABA in the global cloud market has been significantly hindered due to rising competition from the leading cloud players, namely Amazon, Microsoft and Alphabet’s (GOOGL - Free Report) Google.
Conclusion
Given the uncertainties surrounding the prospects of Alibaba, along with mounting expenses, declining margins and intensifying competition in both e-commerce and cloud markets, selling the BABA stock appears to be a prudent move at present.
Currently, Alibaba carries a Zacks Rank #4 (Sell) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.