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

Ahead of Alibaba Group Holding Limited's BABA earnings report, a Needham analyst reiterated a bullish stance on the Chinese retailer. 

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

The Alibaba Thesis: Alibaba's retail sales growth may have decelerated in the June quarter, dragged by a tough comp against COVID-19-induced retail sales growth a year-ago, Yu said in a note.

Alibaba, though having taken market share in the quarter due to the robust growth of Taobao Deal, has seen year-over-year growth of total gross merchandise value decelerate in line with the industry, the analyst said. 
Needham lowered its revenue estimate for the first quarter of 2022 but maintained the profit projection.

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The online grocery business remains a key focus and Alibaba is tackling it with an omnichannel strategy, the analyst said. 

Alibaba's online food delivery service Ele.me is going through a transitional period after management changes, he said.

The company has combined Ele.me, Fliggy and Autonavi under the umbrella of its local life business group, Yu said. 

The speed of merchant onboarding has improved considerably after the introduction of an antitrust regulation that disallows Ele.me's competitors to demand exclusive contracts from merchants, he added.

"While the regulatory environment is challenging, we think the worst period is over for Alibaba and further downside is limited," Yu wrote in the note.

Needham said it finds the stock's valuation attractive.

BABA Price Action: At last check, Alibaba shares were down 0.67% at $210.18.

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