Alibaba Stock (NYSE:BABA)
Bernstein lowered its rating on Alibaba (NYSE:BABA), moving it from Outperform to Market Perform. Additionally, their price target dropped from $130 to $98, reflecting this change.
Bernstein analysts said that they upgraded Alibaba stock a year ago on the premise that the stock had undervalued perpetually low growth and that reopening will assist with growth via an improved category mix. The reasoning behind this upgrade was that the company had been trading at a discount for so long that it had become unattractive to investors. The firm’s stock has drifted in a range since then, but although it is still reasonably priced, persistently slow growth does not seem to be an aggressive bear case anymore.
According to the experts, the Gross Merchandise Volume growth of the Chinese e-commerce behemoth will show signs of revival in the June quarter. Meanwhile, merchant feedback has continued to suggest decreased marketing spending plans. The analysts are concerned that the value trap risk will increase as the quarter-to-quarter comparisons get more difficult.
The analysts believe that the issue with Alibaba (NYSE:BABA) is more than just a lack of user traffic but also congestion among merchants, which drives up search costs and puts pressure on merchant return on investment. Although the overall user engagement on Alibaba (NYSE:BABA) marketplaces is equivalent to that of PDD (PDD), they are home to approximately twice the number of active merchants than PDD.
According to the company, Alibaba (NYSE:BABA) aim to spend on user time spent, and engagement raises worries regarding monetization and the development of core FCF. The current management changes will improve execution since the new strategy seems to place greater emphasis on Taobao and smaller merchants. On the other hand, a sector of e-commerce comprising 6-7 significant companies and expanding at a rate of 8-10% is inherently predisposed to periods of higher rivalry.
In addition, the analysts pointed out that Alibaba stock has a relatively low valuation and that due to the company’s buybacks, the number of outstanding shares was down 2.4% year over year as of the end of FY23. The analysts went on to say that they were not confident that low multiples and small EPS accretion could drive long-term share price performance if the competitiveness issue in core e-commerce was not resolved.
Concerning the Cloud spin-off, the analysts’ issues related to the proper discount that should be applied to the possible danger of sanctions from the United States, the opinion of the private sector business community, and the number of Alibaba (NYSE:BABA) shareholders who would wish to sell on day one.
Premarket trading on June 27 saw Alibaba stock rise by 1.43% to $86.69.
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Author Shariq Khan 
