Alibaba Stock Surges on Improving Outlook for Chinese Equities

  • Stock Market Analysis

E-commerce behemoth Alibaba Group Holdings (NYSE: BABA ) is sitting in a favorable position at the start of 2023 as China reopens from months of COVID-19 restrictions and pledges to prop up the private economy.

Despite many challenges in the past years, Alibaba’s strong reach into 1 billion consumers in China is likely to provide a significant boost for the e-commerce company amid the nation’s economic recovery, analysts added.

Since reaching its all-time high in October 2020, Alibaba’s market cap plunged by two-thirds and currently stands at just over $300 billion. Similarly, the company lost around 15,000 employees in the first three quarters of 2022.

Shares of Alibaba have surged around 67% from their multi-year low in October, with its American Depositary Receipts (ADRs) closing at $117.01 on Friday. The rally has been boosted by news that founder Jack Ma will cease control of fintech titan Ant Group, in which Alibaba has a 33% stake. Ma’s decreasing influence on China’s tech sector is seen as a positive step.

Not just investors, but sell-side analysts are also getting increasingly bullish on Alibaba stock. Analysts at Goldman Sachs and Morgan Stanley recently added Alibaba stock to their ‘Top Pick’ lists. Goldman analysts see Alibaba as one of the biggest beneficiaries of China’s accelerated reopening, macro recovery, and improving internet regulations.

Analysts wrote in a note:

"We see Alibaba at 11X 2023 adj. P/E as the best value stock proxy to enjoy advertising recovery, fintech (via. 33%-owned Ant), and cloud structural growth.”

2023 Brings Hope

Blue Lotus Capital’s Shawn Yang describes Alibaba’s performance last year as “mediocre” and “without many highlights,” however, the company is expected to perform better in 2023.

According to the new year message to employees, CEO Daniel Zhang Yong, has selected the theme of "jin," which translates to "leaping forward" or "seeking progress," for 2023. This is a change from the previous year's theme of "ding," which means "holding steady" or "remaining calm."

The change comes after Alibaba faced a series of challenges over the past two years amid Beijing's crackdown on China’s tech companies to restrain the “disorderly expansion” of capital. In addition, the e-commerce giant faced an 18.2 billion yuan (US$2.6 billion) antitrust fine due to its “monopolistic behavior.”

Frost & Sullivan analyst Carmen Zhu said the slowdown in local economic growth and weaker online consumption has weighed on Alibaba’s Taobao and Tmall platforms, which are used by 1 billion Chinese consumers.

But things are looking brighter for Alibaba as China finally reopens from its zero-COVID policy. Zhang said the lift of the restrictions is set to benefit Alibaba on several fronts.

“[An easing] would all be very positive going forward,” Zhang said.

In the meantime, Alibaba unveiled a new offering that allows AliExpress shoppers in Europe to pay for their purchases only after delivery. The offering represents Alibaba’s own Buy Now, Pay Later (BNPL) solution aimed at driving the company’s global sales amid tepid local demand. The move comes after fintech firm Splitit Payments said it teamed up with Ant Group’s Alipay to let AliExpress users pay for their merchandise after delivery.

Founded in 2010, AliExpress is an online retail marketplace run by Alibaba, which sells a wide range of products such as gadgets, clothes, toys, accessories, and more. Most vendors who sell on the platform are Chinese firms, which often results in long shipping times.

Alibaba will first launch the BNPL service in Germany, Spain, and France, before potentially expanding into new markets, according to Atlanta-based Splitit. The service, named “Pay After Delivery,” will allow Europe-based AliExpress shoppers to pay for their goods in installments using their credit cards.

According to an AliExpress spokesman, shoppers based in major European cities like Paris and Madrid will be able to receive their merchandise in 10 working days, whereas delivery times in more remote areas could be between 15 to 20 days. AliExpress will also offer a delivery guarantee, providing some compensation to buyers if their goods do not get delivered on time.

Meme Stock Investor Cohen Buys Stake

Meanwhile, activist investor Ryan Cohen has been increasing his stake in Alibaba in an attempt to push the Chinese company to accelerate and expand its share buyback plan, according to the Wall Street Journal.

Cohen, who is followed by a great number of individual investors, built up a stake worth hundreds of millions of dollars during the second half of 2022, the WSJ report adds. Known for his contribution to the meme-stock craze two years ago, Cohen has a net worth of more than $2.5 billion thanks to his strong portfolio consisting of Apple (NASDAQ: AAPL ), Wells Fargo (NYSE: WFC ), and Citigroup (NYSE: C ) stocks, among others.

Cohen first reached out to Alibaba’s board in August, telling them that the company’s shares are significantly undervalued. He also told the board that Alibaba can hit double-digit sales and almost 20% free-cash-flow growth over the following 5 years.

Shortly after being contacted by Cohen, Alibaba announced the expansion of its share repurchase plan to $40 billion in November, while also extending it until March 2025. The e-commerce firm said it bought back around $18 billion of its shares under the current repurchase program, as of Nov. 16.

Conclusion

Alibaba stock is getting more love from investors in recent weeks and months, which is best seen by a rally of around 70% since November, fueled mostly by China reopening and the easing of regulatory crackdown on tech companies across the country.

. . .

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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