The Alibaba Analyst: Vincent Yu maintained a Buy rating on Alibaba shares and reduced the price target on shares from $230 to $180.
The Alibaba Thesis: Recent resurgence of COVID-19 cases in China has caused multiple cities to lock down, analyst Yu said in a note. Along with regulatory crackdowns on the Internet and in the education and real estate sectors, China’s macroeconomic conditions continue to exhibit weakness on the consumer spending front, the analyst added.
The year-over-year growth of China’s retail sales decelerated from 12.1% in June to 3.9% in November despite the boost from the “Singles’ Day” promotional campaign, the analyst noted. Specifically, online retail sales grow at a slower pace of 6.3% in November compared to 13.9% in June, he added.
The analyst expects a bigger deceleration in December.
The apparel category, which contributes to a bigger proportion of Alibaba sales, took a bigger hit across the country, Yu said. The analyst, therefore, expects Alibaba to see a greater impact than its peers.
“The macro headwind not only hurts the transactions on China retail business directly, but on various business lines,” Yu said.
As such, Needham lowered its international commerce revenue estimate for Alibaba by 7%. Aliexpress, the company’s online business that caters to overseas online buyers, would experience a full-quarter impact from the recent European regulation change on the exemption of import value-added tax for goods below 22 euros, the firm noted.
The firm also lowered its estimates for Cloud Computing revenues by 8%, citing struggles at the company’s clients in the internet, gaming and education sectors due to macro headwinds and regulatory impact.
The digital media and entertainment revenue has also been lowered by 7%, the firm added.
Accounting for these reductions, Needham lowered its total revenue estimate for the December quarter by 1%, operating income by 17%, adjusted EBITA by 13% and adjusted net profit by 10%.
BABA Price Action: Alibaba shares were down 0.030% at $131.33 Friday afternoon.
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