Chinese e-commerce giant Alibaba (NYSE:BABA) experienced a significant setback on Thursday as analysts at Macquarie expressed concerns over the company’s forward earnings potential. Struggling since late 2020, Alibaba’s future hinges on the Chinese consumer economy and its ability to expand into Southeast Asia.
Macquarie downgraded BABA stock to “neutral,” citing concerns about the company’s balance between defensive and expansionary efforts, which could potentially limit earnings growth. Analyst Ellie Jiang and her team also reduced the price target by 4% to $85.40. Alibaba’s fiscal third-quarter performance, with revenue growing only 5% year-over-year, added to the concerns.
Macquarie noted that Alibaba’s leadership is committed to increasing investments to maintain market leadership, leading the analysts to cut EBITDA estimates to account for the more aggressive spending. Despite Alibaba’s commitment to reignite growth in its core e-commerce and cloud computing businesses, skepticism remains due to broader headwinds.
The U.S. economy has been recovering from the Covid-19 disruption, but consumer spending in China has not yet returned to pre-pandemic levels. The Economist highlights concerns that China may no longer be a reliable growth engine, with its property boom over and local governments lacking funds for infrastructure projects.
However, Alibaba’s potential for success is not entirely bleak. Nikkei Asia suggests that China’s slowdown won’t halt growth in Southeast Asia, which could provide a lifeline for BABA stock. Alibaba has invested billions in Lazada, a Southeast Asian online shopping platform it controls. Despite facing significant competition and recently reducing its headcount, BABA stock maintains a strong buy consensus among analysts overall.
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