Despite Macro Pressures, Alibaba Shows Resilience and Potential for Long-Term Value, Says Analyst

Susquehanna analyst Shyam Patil reiterated Alibaba Group Holding Limited BABA with a Positive and a $160 price target.

While BABA continues to face pressure related to the macro and lingering pandemic impacts, the June quarter’s relative stability helped highlight solid execution. 

He sees the restructuring as a potential long-term value driver. BABA remains the leading Chinese e-commerce player with a sizeable secular growth opportunity. 

The Q1 highlights solid execution and diligent cost controls. Despite some uncertainty, the growth rate ticked up nicely from 4Q, reflecting a general improvement in the Chinese macro in the June quarter. 

EBITDA surpassed estimates, aided by the top-line beat and continued cost controls. The outlook remains murky, focused on execution. 

BABA remains diligently focused on execution and controlling costs in the current environment and expects newer businesses to continue narrowing EBITA losses. 

The company continues to be biased toward quality growth and expects this dynamic to persist even in an improving macro, lending to cost leverage further. 

To that end, management noted GMV likely will accelerate in an improving macro. 

Taobao-Tmall revenue showed solid sequential acceleration, boosted by the 6.18 shopping festival. 

BABA’s previously announced restructuring took effect this quarter, and this segment now comprises Taobao, Tmall, Xianyu, 1688.com, and others. 

International Digital Commerce revenue showed continued execution of the international playbook. 

Cloud continues to reflect pressure related to declining hybrid cloud revenues, driven by further project delays. Cloud Intelligence now includes BABA’s cloud business, DingTalk, and others, and BABA intends to spin the company out soon. 

Cainao revenue showed an excellent seasonal acceleration. 

BABA continues to narrow losses in its Local Services business, with sequential improvement on both an absolute and margin basis. 

Patil estimates revenue of RMB 207.176 million in Q2 and RMB 868.687 million in FY23. He raised his FY24 revenue estimate by 4% and his FY25 revenue estimate by 6% based on the results, outlook, and management’s commentary.

Price Action: BABA shares closed lower by 0.80% at $92.90 on the last check Thursday.