Alibaba Group Holding Ltd – ADR (NYSE:BABA) shares are threatening to break below their lowest level in about three years following a roller coaster year that was marked by regulatory woes, intensifying competition and a weaker consumer environment.
The Alibaba Analyst: Needham analyst Vincent Yu maintained a Buy rating on Alibaba shares and reduced the price target from $330 to $230.
The Alibaba Thesis: Alibaba reported a rare “miss plus guide-down” for its September quarter, with both top- and bottom-line trailing expectations and revenue growth guidance lowered from 20% to 23% from the 29.7% growth announced in May, analyst Yu noted.
Growth of core commerce and customer management revenue slowed on weak macro and intensified competition, the analyst said. Margins, meanwhile, were hurt by spending on merchant support and the permanent waiver of certain merchant services fees, he added.
Cloud growth was better than expected, Yu said. User growth also came in strong at 62 million in net adds for the quarter, including 41 million in China, the analyst noted.
The annual active user growth and order growth were not translated to revenue growth due to promotions, the analyst said. A large number of new users in lower-tier regions are dragging down the platform ARPU, he added.
Needham lowered its December quarter China commerce revenue by 13% and total revenue by 9%. The firm also reduced its adjusted EBITDA margin by 491 basis points to 19.2%.
The firm, however, said it continues to believe Alibaba’s well-established ecosystem and strategic position in the e-commerce value chain are competitive barriers to new market entrants.
BABA Price Target: Alibaba shares were down 1.71% at $134.29 at publication Tuesday morning.
Photo: Courtesy Alibaba