3 Alibaba Analysts Say Valuation Is Attractive Despite Q1 Disappointment

Alibaba Group Holding Limited BABA reported June quarter results Tuesday, sending the Chinese e-commerce company's stock lower. 

The Alibaba Analysts: Needham analyst Vincent Yu maintained a Buy rating and $330 price target for Alibaba shares.

Raymond James analyst Aaron Kessler reiterated a Strong Buy rating and $300 price target.

KeyBanc Capital Markets analyst Hans Chung maintained an Overweight rating and lowered the price target from $270 to $250.

Needham Sees Alibaba's Valuation As Attractive: Alibaba revenues were slightly below expectations, but the margin came in better than expected despite investments, Needham analyst Yu said in a note.

Tougher comps caused by COVID-19 led to a 5% drop in China e-commerce revenues, the analyst said. Cloud revenues continued to be hit by the loss of one top international customer due to local regulation, he said. 

The margin outperformance was due to the Street overestimating the cadence at which Alibaba is allocating its planned investments, Yu said.

Key investments focused on the Community Marketplace business and Taobao deal showed good initial results, the analyst said. Investments in these two core areas will likely ramp up in the second half, he added.

The losses incurred by these investments will likely widen in the second half, Yu said.

"We believe Alibaba is navigating the current regulatory environment well and is poised to grow in several business areas such as ride-hailing and food delivery, in which increased regulations can benefit the overall industry as some competition will be eliminated."

Needham sees the valuation of the stock as attractive.

Related Link: How Alibaba's Cloud Business Stacks Up Against US Rivals

RayJay Sees No Material Risk From Regulators: While Alibaba's core Marketplace was slower than expected, comps are expected to ease in the December and March quarters, Raymond James analyst Kessler said.

Alibaba increased its share repurchase program from to $10 billion to $15 billion, the largest share repurchase program in its history, the analyst said. 

On the regulatory side, Alibaba said it is studying the regulatory requirements, evaluating potential impacts on its relevant businesses and will respond positively with actions, the analyst added.

"At this point, we do not believe there is material risk to Alibaba's businesses based on recent regulatory actions," Kessler said.

RayJay's positive opinion on Alibaba hinges on expectations for continued solid China e-commerce growth.

Alibaba's valuation, at 10 times the estimated market place EPS estimate for 2022, is attractive, the firm added.

KeyBanc Says Alibaba's Guidance Unachievable: Among the positives out of Alibaba's quarterly results were strong performance in low-tier city penetration and community market place, analyst Chung said.

The Cloud business's good profitability despite the reclassification of the loss-making DingTalk business into the segment is also a positive, the analyst said.

The analyst also noted that Data Mid-end experienced a lower-than-expected loss.

On the other hand, the analyst said revenue guidance for fiscal year 2022 appears unachievable. Good traction in operational metrics for new initiatives may prompt higher investment, he added.

Uncertainty around regulation on industrywide data privacy and security issues is also an overhang, Chung said.

BABA Price Action: Alibaba shares were up 2.27% at $201.80 at last check Wednesday. 

Related Link: Alibaba Analyst Says Regulatory Environment 'Challenging,' But Worst Is Over

Photo: the Tmall app. Courtesy Alibaba.