Alibaba Analyst Thinks Management Willing To Take Bold Measures To Rebuild Shareholder Value

Alibaba Group Holding Ltd. BABA shares have been stuck in a rut, having pulled back about 60% from their all-time of $319.32 reached in late-October 2020. An analyst at Truist Securities weighed in on the ecommerce giant's investor day presentations and the implication for the company and the stock moving forward.

The Alibaba Analyst: Analyst Youssef Squali maintained a Buy rating and $200 price target on Alibaba shares.

The Alibaba Thesis: Alibaba's management understands the severity of the situation and has relayed its willingness to "act in order to build shareholder value," analyst Squali said.

Incremental financial disclosures on segment revenues and profitability showed the magnitude of losses on emerging initiatives, including Local, Taobao Deals, Taocaicai and International, the analyst said. This in turn underlined the sustained healthy margin of the more mature China Commerce core business, he added.

The presentation also highlighted profitability or near-profitability of Cloud and Cainiao, the two segments, which were in investment mode for the last several years and are now virtually at profitability, Squali said.

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The management, the analyst noted, signaled that it is open to the potential of creating value by raising external capital for money-losing units. This will serve to capture the valuation disparity between its subsidiaries and public peers, and reduce the investment pressure on the group's margin, the analyst said.

A case in the point is Alibaba's Turkish ecommerce business unit Trendyol, which raised $1.5 billion in private placement, led by SoftBank Group Corp. SFTBY, valuing the company at $16.5 billion, the analyst noted.

Alibaba also discussed the possibility of separately listing certain units, Squali said. Two businesses that could materially benefit from such strategy are Cainiao and Lazada, the analyst added.

Alibaba Price Action: At last check, Alibaba shares were down 6.10% at $114.82.

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