Alibaba earnings highlight ‘attractive turnaround story’, although stocks return gains

Shares of Alibaba Group Holdings Ltd. appeared to give up after earnings in Friday’s trading, but analysts generally praised the Chinese e-commerce giant’s recent results.

I mentioned the company Revenue growth is basically flat for the June quarter on Thursday morning, indicating an improvement in business trends over the period as well as progress in efforts to rein in expenditures. Alibaba shares listed in the US BABA,
-5.00%
It gained 1.8% in the Thursday session, although it fell 4.2% in the Friday morning move and traded lower than it did before the report.

Once again, analysts were encouraged by what they saw from Alibaba’s management team, in particular Following a difficult period for the company and stocks. Alibaba has suffered from macroeconomic pressures on the Chinese consumer, geopolitical tensionsAs well as the increasing competition from live broadcasting platforms.

Shares are down 53% in the past 12 months, such as KraneShares CSI China Internet ETF KWEB,
-2.36%
It lost 42% and as a S&P 500 SPX,
-0.16%
It has decreased by 6%.

“This is the first quarter in our live results-tracking period, and we feel that the downward review cycle appears to be coming to an end,” Mizuho’s James Lee wrote in a note to clients.

He highlighted that while customer management revenue was lagging behind total merchandise volume due to increased merchant expenses, Alibaba still outperformed EBIT and appreciation expectations in its China business.

“Disciplined spending leads to outperformance,” Lee continued, while repeating his buy rating and price target of $160 per share. He described Alibaba as “an engaging story of transformation in our coverage”.

Similarly, Citi Research analyst Alicia Yap was encouraged.

“We view the strong cadence of rates and a stronger-than-expected earnings streak as a much-anticipated print, which we believe can help improve overall market sentiment on BABA’s fundamentals and its ongoing efforts to overcome multiple challenges over the past 1.5 years,” she wrote in a note to clients.

For Yap, a highlight was Alibaba’s average single-digit decline in total volume of merchandise paid on Taobao and Tmall, a performance that I thought was “ahead of many buy-side and sell-side expectations” where “many were expecting [growth to be] down mid-teens” on an annual basis.

“Most importantly, we are looking at China’s trade adjustment. EBITA … is positive and a ‘wanted surprise’ to reassure investors about the company’s cost optimization efforts and to help verify its ability to generate profits.” Yap has ranked the stock as a buy with a target price of $172.

Read: Inflation leads us to a tale of two cities

Jefferies analyst Thomas Chung writes that while Alibaba is working to cut costs, its management team appears to be taking a measured approach to the process.

He wrote, “The pursuit of cost and efficiencies improvement is driven by strategic choice and judgment of the overall environment rather than primarily financial considerations.” “Cost-effectiveness applies to business units with different strategies amidst the uncertainty of macro environments.”

It has a buy rating and a $230 price target for US-listed Alibaba stocks.