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Macquarie Lowers Rating on Alibaba as Earnings Growth Seen Limited

By Don Francis, Editor
February 9, 2024 6:51 AM UTC
Macquarie Lowers Rating on Alibaba as Earnings Growth Seen Limited

Macquarie's Ellie Jiang downgraded their rating on Alibaba (NYSE: BABA) from Buy to Hold on February 8, 2024. The analyst also announced a $85.4 price target.

Jiang's update followed an assessment of Alibaba's third-quarter 2023 earnings report, which was dated February 7, 2024, and participation in the earnings call. The analyst noted that savings from non-core operations partially offset the impact of new investments. However, Jiang cautioned that earnings growth going forward might be limited as the company balances "defense and expansion." In order to reflect Alibaba's "more aggressive" expenditures, Macquarie lowered its adjusted EBITDA estimates.

Additionally, Macquarie predicted that "group [Internet Retail] earnings will begin to decline." This downgrade from a Buy rating to a Hold rating by Macquarie reflects a more cautious outlook for Alibaba's future performance.

Alibaba's third-quarter 2024 financial results showed that the company fell short of expectations. The earnings per share (EPS) of $2.67 missed the Zacks Consensus Estimate of $2.73 and declined by 2% year-over-year. However, the company's revenue of $36.67 billion was up 5% year-over-year, even though it missed the Zacks Consensus Estimate of $37.21 billion.

Alibaba's management did not provide financial guidance in its press release or earnings call. CEO Eddie Wu highlighted the company's focus on reigniting the growth of its core businesses, e-commerce, and cloud computing. Wu also emphasized their commitment to improving users' core experiences, driving growth in the Taobao and Tmall Group, and strengthening market leadership. CFO Toby Xu mentioned the company's healthy quarter with revenue growth of 5% year-over-year. Xu also highlighted the increased investment in strategic priorities and the approval of an increase of $25 billion to the share repurchase program.

In addition to Macquarie's downgrade, other analysts also updated their ratings on February 8, 2024. JP Morgan's Alex Yao lowered their price target by 4.5%, from $110 to $105, but maintained their Strong Buy rating on the stock. Goldman Sachs's Ronald Keung lowered their price target by 13.2%, from $121 to $105, and also maintained their Strong Buy rating on the stock. Susquehanna's Shyam Patil lowered their price target by 10%, from $150 to $135, but, like the others, maintained their Strong Buy rating on the stock.

Despite these downgrades, 100% of top-rated analysts currently rate Alibaba as a Strong Buy or Buy. No analysts see it as a Hold, and no analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that Alibaba's upcoming year will deliver earnings per share (EPS) of $6.75. If the analysts are correct, Alibaba's next yearly EPS will be up by 23.6% on a year-over-year basis.

Since Alibaba's latest quarterly report on February 7, 2024, the stock price has declined by 3.9%. Year-over-year, the stock is down by 32.7%. During that period, Alibaba is trailing the S&P 500, which is down 21.4%.

It is worth noting that Macquarie analyst Ellie Jiang is ranked in the top 40% out of 4,469 Wall Street analysts by WallStreetZen. Jiang has an average return of 28.4% and a 66.7% win rate. They specialize in the Industrials, Consumer Cyclical, and Communication Services sectors.

Alibaba Group Holding Limited is a company that specializes in e-commerce, retail, Internet, and technology. The company provides various sales services such as consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business (B2B) through web portals. They also offer electronic payment services, shopping search engines, and cloud computing services. Alibaba hosts the largest B2B marketplace (Alibaba.com), C2C marketplace (Taobao), and B2C marketplace (Tmall) in the world. The company was founded in 1999 and is headquartered in Hangzhou, China.

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