Yahoo Finance BABA Gains 13.6% in 3 Months: Can AIDC Strength Drive the Stock?
Alibaba BABA shares have gained 13.6% in the past three months, outperforming the Zacks Internet-Commerce industry’s return of 3.6%, the Zacks Retail-Wholesale sector's rise of 4.6% and the S&P 500’s rally of 2.6%.
The company has been benefiting from solid momentum in the Alibaba International Digital Commerce Group (“AIDC”) business, which is comprised of Lazada, AliExpress, Trendyol, Alibaba.com, and other businesses operating in the international retail and wholesale markets.
BABA’s strategic investments and a deepening focus on the innovation of products and services with the power of AI are playing a vital role in shaping the growth trajectory of the company.
Three-Month Price Performance
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Uncertainties in the global environment, changing consumption patterns, recessionary fears, market volatility and challenging conditions in China's economy do not bode well for BABA stock.
Escalating tensions between the United States and China are concerning. Although this geo-political tech war is not directly related to the e-commerce industry, its residual effect does not bode well for Alibaba and other similar companies.
Although Alibaba is the dominant e-commerce player in China, its global position remains under threat from bigwigs like Amazon AMZN and eBay EBAY.
Given the combination of both risks and rewards, investors should carefully weigh Alibaba’s growth prospects against the challenges it faces.
AIDC Strength Boosts Alibaba’s Prospects
Solid momentum in AliExpress, Trendyol and Alibaba.com has been benefiting the overseas e-commerce business significantly. Growing investments in key markets are helping improve the brand recognition of AliExpress and Trendyol.
Alibaba’s expanding cross-border retail and logistics operations are major positives.
Strength in AliExpress Choice is driving growth within the business. Its initiative of upgrading the supply-chain service has resulted in the transition from the original platform business model to a supply-chain-driven platform marketplace model, which offers semi-consignment and full-consignment services.
Alibaba expanded the supplier base on the AliExpress platform, which now includes local merchants, in order to enhance its product offerings and meet local consumers’ demands seamlessly. Alibaba’s partnership with Magazine Luiza, a leading retailer in Brazil, per which the latter will open and operate a storefront on AliExpress and vice versa, remains noteworthy.
Alibaba’s deepening focus on delivering localized and enhanced user experiences to different consumers worldwide remains noteworthy. The company is leveraging AI and other advanced technologies to improve efficiency in areas like cross-platform product listing, product details, multilingual search and targeted recommendations.
Alibaba is witnessing an increase in the number of small and medium-sized enterprises (SMEs) utilizing AI services on its platform.
The introduction of Alibaba Guaranteed for global SMEs is another plus. Alibaba Guaranteed is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability.
The launch of an affordable logistics solution, namely Logistics Marketplace, for SMEs in the United States is noteworthy.
Banking on these factors and initiatives, there is a substantial upward potential in the AIDC business, which has turned out to be the key catalyst for Alibaba.
Growing Estimates Paint Bright Picture for BABA
Alibaba’s long-term prospects are expected to benefit from its robust international commerce business and strong AI integrations.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $139.56 billion, indicating 7% year-over-year growth.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $8.68 per share, indicating a year-over-year rise of 1%. The figure has been revised upward by 5.9% over the past 60 days.
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Solid Liquidity Supports BABA’s Shareholder-Friendly Initiative
Alibaba’s strong balance sheet and robust cash flow generating ability are noteworthy. As of June 30, 2024, the company had a strong net cash position of RMB 405.75 billion or $55.8 billion. The free cash flow was RMB 17.4 billion or $2.4 billion. Solid cash flow generation allows Alibaba to return in the combination of share repurchase and dividend payments to its shareholders.
In the quarter ended June 30, 2024, it repurchased 613 million ordinary shares (equivalent to 77 million ADSs) for $5.8 billion in the United States and Hong Kong markets under its share repurchase program.
Attractive Valuation: A Silver Lining for BABA
Alibaba is currently trading at a discount with a forward 12-month Price/Earnings of 9.69X compared with the industry’s 24.51X and lower than the median of 9.89X. This indicates a solid opportunity for investors.
It also has a Value Score of A, which is hard to ignore.
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Final Note
Alibaba’s strength in its international commerce business and leading position in China's e-commerce space, along with rising estimates, attractive valuation and solid liquidity, present a compelling investment opportunity.
However, macroeconomic uncertainties, softness in China and stiffening competition in the global e-commerce market do not bode well for the BABA stock.
To conclude, investors interested in Alibaba should wait for a better entry point, considering uncertainties surrounding its prospects. BABA currently has a Growth Score of C, which is not a favorable indicator.
However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's long-term prospects are solid. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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