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  ·2024-07-22
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  Alibaba: One Step Forward, Two Steps Back (Rating Downgrade)
  Alibaba investors have witnessed several "false dawns" over the past two years.BABA bulls have failed to hold on to their positions after surges, demonstrating a lack of conviction.Further trade restr
  Alibaba: One Step Forward, Two Steps Back (Rating Downgrade)
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Read on.</p></li></ul><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/84b6aeab08dc480ef3a214462aadfcfd\" tg-width=\"750\" tg-height=\"500\"/></p><p></p><h2 id=\"id_1529390537\">Alibaba: Disappointing Recovery</h2><p>Alibaba Group Holding Limited (NYSE:BABA) (OTCPK:BABAF) investors have endured another disappointing fourth fiscal quarter as Alibaba&#39;s growth recovery remains tepid. Geopolitical headwinds between the US and China have also intensified as the US steps up pressure against China. Accordingly, the Biden administration could implement the &#34;most severe trade restrictions available&#34; on ASML (ASML) and Tokyo Electron (OTCPK:TOELY).</p><p>As a result, the potential ramifications have sent semiconductor stocks tumbling this week. Given the criticality of their semiconductor supply chain, there are suggestions that the proposed trade restrictions might result in a pushback by the US&#39;s allies.</p><p>In a pre-earnings BABA article in May 2024, I updated Alibaba investors on why the stock could be primed to recover further. However, buying sentiments have remained surprisingly weak as the early momentum in Chinese equities has fizzled out. Despite that, it&#39;s possible that BABA&#39;s recovery could still occur in the second half, although China&#39;s recent third plenum might not be sufficient to revive near-term sentiments.</p><p>Accordingly, growth catalysts on Chinese equities are considered inadequate, suggesting &#34;few initial signs of major steps to boost demand or address the property slump.&#34; China&#39;s economic recovery in Q2 has failed to sustain its early momentum, as China&#39;s property market malaise still weighs down consumer spending. As a result, Alibaba investors should expect BABA to remain stuck in a consolidation zone (sideways price action) in the near term as investors reassess Alibaba&#39;s cross-border growth momentum. Wall Street is expected to stay relatively unenthusiastic about Chinese equities in general, as China&#39;s third plenum is noted for a lack of &#34;firm and immediate market read-through.&#34;</p><h2 id=\"id_1925970995\">Alibaba: Lackluster Growth Drivers</h2><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/50988e0d79a45865f1d8f0aab0c632a1\" tg-width=\"640\" tg-height=\"454\"/></p><p>Alibaba revenue segments (FinChat)</p><p></p><p>As seen above, Alibaba&#39;s China commerce business (Taobao and Tmall Group) remains the key revenue driver for the beleaguered e-commerce platform leader. Alibaba&#39;s international commerce business (AIDC) drove a 45% increase in revenue in FQ4. However, mitigating the languid momentum in the e-commerce leader&#39;s overall revenue base wasn&#39;t sufficient. As a result, I assessed that China&#39;s weak retail spending climate will continue to hamper more robust buying sentiments. Without a decisive boost to spur China&#39;s flagging property market, it could intensify BABA&#39;s execution risks in FY2025.</p><p>Alibaba has refocused on AI as the centerpiece of its cloud computing growth strategy. Alibaba Cloud remains China&#39;s cloud computing leader. However, momentum has remained surprisingly tepid (up 3% YoY in FQ4), suggesting growth headwinds haven&#39;t been resolved.</p><p>The US chip restrictions have also hampered Alibaba&#39;s ability to accumulate NVIDIA (NVDA) chips, leading to user restrictions. Therefore, the company&#39;s ability to rejuvenate its growth momentum through its cloud platform business is still highly uncertain. Moreover, the US hyperscalers have also capitalized on the chip restrictions by offering Chinese companies access to Nvidia chips through their cloud offerings. Consequently, it has allowed these companies to circumvent the chip restrictions, which could hurt BABA&#39;s ability to attract customers. However, whether the &#34;loophole&#34; could be closed as the US attempts to deny China further access to the most advanced AI chips remains to be seen.</p><p>Moreover, investors are increasingly weighing on a potential second Trump administration. Wall Street has assessed it could affect buying sentiments on Chinese equities. Trump&#39;s potentially triumphant return could galvanize his administration to double down on their efforts and campaign promises to hit China harder with tariffs. As Trump is not allowed to seek re-election in 2028, there is a possibility that a more intense trade war between the US and China could erupt. Given Alibaba&#39;s need to reignite growth in its cross-border e-commerce business as domestic retail spending remains weak, it could materially affect investor confidence.</p><h2 id=\"id_3861158302\">BABA: Valuation Shouldn&#39;t Be The Main Driver</h2><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/da0dabbcaeb4d2d7d208a9c0b7c030e8\" tg-width=\"613\" tg-height=\"325\"/></p><p>BABA Quant Grades (Seeking Alpha)</p><p></p><p>Notwithstanding my caution on BABA, its valuation isn&#39;t assessed as aggressive. Therefore, Alibaba bulls could argue that significant pessimism has likely been reflected. However, the stock&#39;s 1Y total return of -13% over the past year is substantially lower than PDD&#39;s (PDD) 1Y total return of 75%.</p><p>PDD is valued at a markedly higher adjusted EBITDA multiple of 7.8x compared to BABA&#39;s 5.8x. As a result, I have mistakenly assessed BABA&#39;s &#34;attractive&#34; valuation as a critical driver of its thesis.</p><p>The market is correct, as BABA&#39;s weak growth thesis (&#34;F&#34; growth grade) underscores the challenges discussed earlier. Coupled with potentially intensified geopolitical headwinds that a second Trump administration could worsen, it doesn&#39;t look promising for Alibaba investors.</p><h2 id=\"id_2128006099\">Is BABA Stock A Buy, Sell, Or Hold?</h2><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/79c339342806764f98cc5fb6ed96e932\" tg-width=\"640\" tg-height=\"394\"/></p><p>BABA price action (weekly, medium-term, adjusted for dividends) (TradingView)</p><p></p><p>Several &#34;false dawns&#34; were observed in BABA&#39;s price action over the past two years. Similarly, I&#39;ve also assessed a sharp surge toward the stock&#39;s May 2024 highs under the $90 level before it collapsed. As a result, dip-buyers don&#39;t seem to have enough conviction to hold on to their positions, hampering a more sustained recovery.</p><p>However, I&#39;ve also assessed that turning bearish on BABA seems too aggressive, given the company&#39;s solid profitability (&#34;A&#34;+ profitability grade) and lack of significant selling intensity (&#34;C+&#34; momentum grade). Therefore, I believe a Hold rating seems appropriate for BABA for now.</p><p><em>Rating: Downgrade to Hold.</em></p><p><em>Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing, unless otherwise specified.</em></p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Alibaba: One Step Forward, Two Steps Back (Rating Downgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAlibaba: One Step Forward, Two Steps Back (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-22 11:40 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4705310-alibaba-one-step-forward-two-steps-back><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba investors have witnessed several \"false dawns\" over the past two years.BABA bulls have failed to hold on to their positions after surges, demonstrating a lack of conviction.Further trade ...</p>\n\n<a href=\"https://seekingalpha.com/article/4705310-alibaba-one-step-forward-two-steps-back\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BABA":"阿里巴巴","09988":"阿里巴巴-W"},"source_url":"https://seekingalpha.com/article/4705310-alibaba-one-step-forward-two-steps-back","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2453220230","content_text":"Alibaba investors have witnessed several \"false dawns\" over the past two years.BABA bulls have failed to hold on to their positions after surges, demonstrating a lack of conviction.Further trade restrictions on semiconductor stocks could impact Alibaba's supply chain and hinder near-term sentiments.A potential Trump second term could worsen the geopolitical headwinds with China, intensifying execution risks.I argue why I've finally learned my lessons on BABA, as my bullish thesis never really took off. Read on.Alibaba: Disappointing RecoveryAlibaba Group Holding Limited (NYSE:BABA) (OTCPK:BABAF) investors have endured another disappointing fourth fiscal quarter as Alibaba's growth recovery remains tepid. Geopolitical headwinds between the US and China have also intensified as the US steps up pressure against China. Accordingly, the Biden administration could implement the \"most severe trade restrictions available\" on ASML (ASML) and Tokyo Electron (OTCPK:TOELY).As a result, the potential ramifications have sent semiconductor stocks tumbling this week. Given the criticality of their semiconductor supply chain, there are suggestions that the proposed trade restrictions might result in a pushback by the US's allies.In a pre-earnings BABA article in May 2024, I updated Alibaba investors on why the stock could be primed to recover further. However, buying sentiments have remained surprisingly weak as the early momentum in Chinese equities has fizzled out. Despite that, it's possible that BABA's recovery could still occur in the second half, although China's recent third plenum might not be sufficient to revive near-term sentiments.Accordingly, growth catalysts on Chinese equities are considered inadequate, suggesting \"few initial signs of major steps to boost demand or address the property slump.\" China's economic recovery in Q2 has failed to sustain its early momentum, as China's property market malaise still weighs down consumer spending. As a result, Alibaba investors should expect BABA to remain stuck in a consolidation zone (sideways price action) in the near term as investors reassess Alibaba's cross-border growth momentum. Wall Street is expected to stay relatively unenthusiastic about Chinese equities in general, as China's third plenum is noted for a lack of \"firm and immediate market read-through.\"Alibaba: Lackluster Growth DriversAlibaba revenue segments (FinChat)As seen above, Alibaba's China commerce business (Taobao and Tmall Group) remains the key revenue driver for the beleaguered e-commerce platform leader. Alibaba's international commerce business (AIDC) drove a 45% increase in revenue in FQ4. However, mitigating the languid momentum in the e-commerce leader's overall revenue base wasn't sufficient. As a result, I assessed that China's weak retail spending climate will continue to hamper more robust buying sentiments. Without a decisive boost to spur China's flagging property market, it could intensify BABA's execution risks in FY2025.Alibaba has refocused on AI as the centerpiece of its cloud computing growth strategy. Alibaba Cloud remains China's cloud computing leader. However, momentum has remained surprisingly tepid (up 3% YoY in FQ4), suggesting growth headwinds haven't been resolved.The US chip restrictions have also hampered Alibaba's ability to accumulate NVIDIA (NVDA) chips, leading to user restrictions. Therefore, the company's ability to rejuvenate its growth momentum through its cloud platform business is still highly uncertain. Moreover, the US hyperscalers have also capitalized on the chip restrictions by offering Chinese companies access to Nvidia chips through their cloud offerings. Consequently, it has allowed these companies to circumvent the chip restrictions, which could hurt BABA's ability to attract customers. However, whether the \"loophole\" could be closed as the US attempts to deny China further access to the most advanced AI chips remains to be seen.Moreover, investors are increasingly weighing on a potential second Trump administration. Wall Street has assessed it could affect buying sentiments on Chinese equities. Trump's potentially triumphant return could galvanize his administration to double down on their efforts and campaign promises to hit China harder with tariffs. As Trump is not allowed to seek re-election in 2028, there is a possibility that a more intense trade war between the US and China could erupt. Given Alibaba's need to reignite growth in its cross-border e-commerce business as domestic retail spending remains weak, it could materially affect investor confidence.BABA: Valuation Shouldn't Be The Main DriverBABA Quant Grades (Seeking Alpha)Notwithstanding my caution on BABA, its valuation isn't assessed as aggressive. Therefore, Alibaba bulls could argue that significant pessimism has likely been reflected. However, the stock's 1Y total return of -13% over the past year is substantially lower than PDD's (PDD) 1Y total return of 75%.PDD is valued at a markedly higher adjusted EBITDA multiple of 7.8x compared to BABA's 5.8x. As a result, I have mistakenly assessed BABA's \"attractive\" valuation as a critical driver of its thesis.The market is correct, as BABA's weak growth thesis (\"F\" growth grade) underscores the challenges discussed earlier. Coupled with potentially intensified geopolitical headwinds that a second Trump administration could worsen, it doesn't look promising for Alibaba investors.Is BABA Stock A Buy, Sell, Or Hold?BABA price action (weekly, medium-term, adjusted for dividends) (TradingView)Several \"false dawns\" were observed in BABA's price action over the past two years. Similarly, I've also assessed a sharp surge toward the stock's May 2024 highs under the $90 level before it collapsed. As a result, dip-buyers don't seem to have enough conviction to hold on to their positions, hampering a more sustained recovery.However, I've also assessed that turning bearish on BABA seems too aggressive, given the company's solid profitability (\"A\"+ profitability grade) and lack of significant selling intensity (\"C+\" momentum grade). Therefore, I believe a Hold rating seems appropriate for BABA for now.Rating: Downgrade to Hold.Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing, unless otherwise specified.","news_type":1},"isVote":1,"tweetType":1,"viewCount":149,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"defaultTab":"following","isTTM":true}