Alibaba Analysts React To Earnings Beat: 'Strong Momentum Despite Increased Competition'

Alibaba Group Holding Ltd BABA gained 5% on Wednesday after the company reported some impressive December-quarter earnings numbers on Tuesday.

Alibaba reported adjusted EPS of RMB22.03 ($3.41) on revenue of RMB221.06 billion ($34.22 billion). Both numbers exceeded analyst estimates of RMB20.71 ($3.21) and RMB214.29 billion ($33.17 billion), respectively. Revenue was up 36.9% from a year ago.

Alibaba also reported RMB16.11 billion ($2.49 billion) in cloud computing revenue, up 50% from a year ago. The cloud computing business also turned a profit in the quarter for the very first time.

Alibaba shares got a boost after Bloomberg reported Chinese regulators and Alibaba affiliate Ant Group have agreed to terms to a restructuring plan that could put Ant back on the path to an IPO at some point. Alibaba also announced a new $5 billion debt offering.

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Voices From The Street: Needham analyst Vincent Vu said Alibaba is demonstrating “strong momentum despite increased competition.”

“Going forward, we are more constructive about BABA's growth as Mgt. repeatedly emphasized the importance of increased investments in key areas such as user acquisition for Taobao Live to target the under-penetrated lower-tier-city user base, in Taobao Live to continue help brands engage with potential customers, in market share gains for Lazada, in the ‘community purchase’ space, in research done by Damo Academy, and in the local services segments.” Vu wrote in a note.

Raymond James analyst Aaron Kessler said Alibaba has a very attractive valuation, trading at just 14 times 2022 earnings estimates despite reporting nearly 37% revenue growth.

“We expect continued solid China ecommerce growth with Alibaba as the biggest winner (Alibaba captured about one-sixth of China total retail sales in FY20, crossing $1T in GMV,” Kessler wrote.

Bank of America analyst Eddie Leung said margins on Alibaba’s newer growth initiatives are improving while the company looks to ramp up investments in its core e-commerce business.

“In addition to the innovative projects such as AI, location-based services, enterprise digitalization, microprocessor and computing, which have been running at average quarterly op loss of about RMB3-4b in the past two years, Co. indicates its plan to step up investment in the developing areas of its eC biz such as Taobao Deals, Live/short video, and Grocery incl. community groupbuy,” Leung wrote.

BABA Ratings And Price Targets:

• Needham has a Buy rating and $330 target.
• Raymond James has a Strong Buy rating and $350 target.
• Bank of America has a Buy rating and $322 target.

Alibaba's stock traded around $266.75 at publication time.

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