Ahead of Alibaba’s (BABA) F1Q22 earnings, the common thread running through analysts’ projections was that the ecommerce giant’s investments would weigh on the quarter’s display. And so it proved to be.
The company delivered a mixed set of results that are adding more pressure to shares, already under the cosh by constant battles with the Chinese authorities.
Although there was a beat on the bottom-line as Non-GAAP EPS of CNY16.60 came ahead of the Street’s forecast by CNY2.31, the company failed to meet expectations on the top-line. BABA generated revenue of CNY205.74 billion ($31.8 billion), amounting to a 33.8% year-over-year uptick but missing the estimates by CNY2.93 billion.
As expected, says Truist’s Youssef Squali, there was a declaration for core commerce (CC) revenue, which makes up ~88% of the company’s total sales.
This segment’s revenue hit CNY180.2 billion, lower than the CNY183.2 billion consensus estimate and amounting to a 35% year-over-year increase vs. the 72% growth in F4Q21, “albeit against more challenging comps as the company lapped the onset of the pandemic in China last quarter.”
CC segment EBITA notched CNY45.6 billion, amounting to a 25% margin, better than the 19% margin in F4Q21 but below the 38% delivered in F1Q21.
“We view the Y/Y decline in segment margin as a result of management’s on-going commitment to investing incremental profit back into growth areas within the business, and consistent with its messaging,” said the 5-star analyst, although the level of investment was above Squaii’s and the Street’s forecast.
In fact, the whole set of results is a reflection of the company’s “continuous efforts to aggressively invest to onboard more active buyers.” In FY22, Alibaba hopes these will surpass 1 billion, which will help the company “capture greater share of wallet across its portfolio of existing/emerging platforms.”
And, overall, Squali thinks Alibaba is on track to do just that.
“With Core Commerce sustaining healthy growth/margins, investments both in products (Community Buying, Taobao Deals, Local, Lazada), and in merchants should help protect BABA’s core franchise amidst intense competition while seeding the next growth drivers, given the compelling TAM/growth ahead,” the analyst summed up.
To this end, Squali rates BABA shares a Buy along with a $260 price target. Shares could appreciate by 32%, should the analyst’s thesis play out in the coming months. (To watch Squali’s track record, click here)
There are currently 25 BABA reviews on record, of which 2 are to Hold, 1 to Sell, while the rest, like Squali, recommend to Buy, all culminating in a Strong Buy consensus rating. Moreover, the average price target remains a bullish one; at $275.30, the objective could yield returns of 40% in the year ahead. (See Alibaba stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.