If only those magic words worked for real.
In the fable “Ali Baba and the 40 Thieves,” the eponymous hero gains access to a cave full of riches by uttering the phrase “open sesame.”
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Jack Ma, co-founder of Alibaba (BABA,) liked the story so much that he named a Chinese e-commerce giant after the hero of the story.
“Alibaba is a kind, smart businessperson,” Ma said in a 2006 interview. “Alibaba opens sesame for small- to medium-sized companies.”
Unfortunately, we live in a world that is somewhat short of magic, and riches are not easy to come by.
Alibaba has been facing some challenges lately as the company contends with economic headwinds and other pressing issues.
For one thing, China’s economy has only slowly recovered from the Covid-19 pandemic.
A McKinsey & Co. report found that consumer sentiment in China continues to slump as “consumers prefer to sock their cash away in the bank rather than spend it.”
“While several macroeconomic indicators are pointing in a promising direction, there are a number of areas that are still cause for considerable concern, foremost of which is the continued slump in consumer and business sentiment,” the report said.
The McKinsey report said last year’s collapse in property transactions was a big factor behind the drop in confidence.
The study also said that a 5% decline in exports in 2023, zero growth in fixed asset investment by privately owned companies, and double-digit youth unemployment are other key factors driving a reduction in consumer spending and investment.
Analysts are rethinking their stock predictions for Alibaba Group, co-founded by Jack Ma.
Alibaba CEO Wu says, ‘we are returning to growth’
“While early consumption data for the first two months is promising, the verdict is still out on what this means for the remainder of the year,” the report said.
The Chinese property sector crisis is facing a financial crisis sparked by the 2021 default of Evergrande Group.
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Evergrande and other Chinese property developers experienced financial stress in the wake of overbuilding and subsequent new Chinese regulations on their debt limits.
China is reportedly considering buying up millions of unsold properties as part of a radical plan to tackle the problem, according to Bloomberg.
Meanwhile, Alibaba announced in 2023 that it would split into six business groups, each with the ability to raise outside funding and go public. The company said the move was “designed to unlock shareholder value and foster market competitiveness.”
In November, Alibaba said that it would not proceed with the spinoff of its Cloud Intelligence Group, declaring that U.S. chip export curbs have “created uncertainties” for the group’s prospects.
The company reported fourth-quarter earnings on May 14. It beat revenue forecasts but posted an 86% drop in earnings.
Revenue totaled 221.9 billion yuan, or $30.7 billion, compared with 219.66 billion yuan expected.
Net income attributable to ordinary shareholders was 3.3 billion yuan, or about $457.14 million, down 86% year over year.
Shares initially fell upon the news but have since recovered some losses.
“Starting in 2024, we’ve seen a rapid increase in customer demand for AI,” CEO Eddie Wu told analysts. “It has also stimulated growth and demand for traditional cloud computing needs, including general computing storage and big data.”
Therefore, Wu added, “We are actively investing in our cloud computing product matrix, especially in AI infrastructure, to capture the monumental opportunities.”
Wu said the quarter’s results demonstrate that “our strategies are working, and we are returning to growth.”
“Our China and international commerce businesses realized double-digit year-over-year gross merchandise value (GMV) growth through our focus on the customer experience,” he added.
Eddie Wu Yongming, CEO of Alibaba Group, speaks during the 2023 World Internet Conference Wuzhen Summit on November 8, 2023.
Analyst sees ‘encouraging quarter’ for Alibaba
In response to the earnings announcement, several analysts adjusted the stock price targets for Alibaba.
Truist analyst Youssef Squali lowered the firm’s price target to $110 from $113 and kept a buy rating on the shares.
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The company’s fourth-quarter results showed good operational execution against an improving macro. Gross merchandise volume and orders at the e-commerce platforms Taobao and Tmall Group returned to double-digit growth, and there are prospects for double-digit growth in Cloud in the second half of FY2025.
Squali said he also continues to view FY2025 as an “investment year,” which should keep Alibaba’s margins in check over the near term, the analyst tells investors in a research note.
HSBC raised its Alibaba stock price target to $115 from $114, keeping a buy rating on the shares.
The company reported an improved gross merchandise volume outlook, but monetization will take longer, the analyst tells investors in a research note. The firm said Alibaba remains committed to shareholder return.
Mizuho lowered the firm’s price target on Alibaba to $92 from $95 and kept a buy rating on the shares.
The company reported an “encouraging quarter” as gross merchandise volume accelerated due to the demand elasticity of price discounts, and China commerce margin was on track despite facing a mix shift to a lower-priced platform, the analyst told investors in a research note.
However, the firm says Alibaba’s consolidated EBITA was soft due to long-term investments in international businesses and Cainiao Smart Logistics Network.
Citi analyst Alicia Yap lowered the firm’s price target on Alibaba to $122 from $124 and kept a buy rating on the shares following the fiscal fourth-quarter report.
The analyst sees the company’s initial positive progress demonstrated by a reacceleration of growth led by its strategic reinvestment and “undemanding valuation” as further supported by its “solid” shareholder return policy.
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