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Is Alibaba’s 55.8% upside justified?

The e-commerce giant posted its first ever quarterly loss, thanks to a hefty anti-monopoly fine incurred in the last quarter of fiscal 2021.

  • Alibaba Group Holding Limited (HK) (HKG: 9988) share price closed 4% lower on Friday (14 May 2021)
  • Its US shares (NYSE: BABA) ended 6.3% lower a day earlier
  • The declines came on the back of the e-commerce conglomerate’s first ever quarterly loss in the fourth quarter of 2021
  • Although Alibaba shares are down some 10% this year, analysts are expecting a 56% upside on the stock
  • For 2022, the company has provided a full-year revenue guidance of 930 billion yuan (US$144 billion), representing a potential 30% year-on-year increase
  • Buy and sell Alibaba stocks with an IG account

Alibaba stock price: What’s the update?

Alibaba’s Hong Kong shares fell as much as 5.5% on Friday, after it posted its financial results for the fourth quarter of fiscal 2021.

Meanwhile, its US listing closed 6.3% lower following the earnings release on Thursday.

Although the e-commerce group saw annual revenue surpass its earlier guidance, it also swung into its first ever quarterly net loss of 7.65 billion yuan (US$1.17 billion), due to a US$2.78 billion fine levied by China’s State Administration for Market Regulation pursuant to the Anti-monopoly Law.

Diluted loss per American Depository share (ADS) accordingly amounted to 1.99 yuan (US$0.30), as compared to a diluted earnings per ADS of 1.16 yuan during the same quarter in 2020.

Diluted loss per share was 0.25 yuan (US$0.04 or HK$0.30), versus a diluted earnings per share of 0.14 yuan in the same quarter a year earlier.

The internet behemoth’s US and Hong Kong stocks are down 9.6% and 10.1% respectively year to date.

Analyst sentiments published by MarketBeat show a consensus rating of ‘buy’ and average 12-month price target of US$321 on Alibaba’s US securities. The price target represents an upside 55.8% from the last traded price of US$206.08.

How would Alibaba have fared excluding the fine?

Excluding the fine’s impact and other items, adjusted non-general accepted accounting principles (GAAP) net income was 26.216 billion yuan (US$4 billion) in the last quarter of 2021, an increase of 18% year-over-year.

Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA), a non-GAAP measurement, increased 18% year-over-year to 29.9 billion yuan (US$4.56 billion).

Adjusted earnings before interest, taxes and amortisation (EBITA), a non-GAAP measurement, increased 14% year-over-year to 22.61 billion yuan (US$3.45 billion).

Mobile monthly active users on its China retail marketplaces reached 925 million in March 2021, an increase of 23 million over December 2020.

Across the whole of 2021, revenue surged 41% year-on-year to 717.3 billion yuan (US$109.5 billion). Revenue would have grown 32% year-on-year, if the October 2020 buyout of hypermart chain Sun Art had been excluded.

By segment, core commerce ended 2021 with a revenue of 621.15 billion yuan (US$94.81 billion), uo 42% from 2020. Cloud computing, the second largest segment, ended the year with a revenue of 60.16 billion yuan (US$9.18 billion), up 50% year-on-year.

Digital media and entertainment, as well as innovation initiatives and others, also saw revenues increase by 7% and 8% respectively.

What’s Alibaba’s outlook for fiscal 2022?

Looking ahead, Chief Financial Officer Maggie Wu expects the group to generate over 930 billion yuan (US$144 billion) in revenue in fiscal year 2022. If realised, this would represent a 29.7% increase from 2020.

‘Given the market potential and our proven profit and cash flow generation capabilities, we plan to use all of our incremental profits and additional capital in fiscal year 2022 to support our merchants and invest into new businesses and key strategic areas that will help us increase consumer wallet share and penetrate into new addressable markets,’ she said.

Chairman and CEO Daniel Zhang echoed her sentiments, saying that the company ‘will continue to focus on customer experience and value creation through innovation’, as it pursues its mission to ‘make it easy to do business anywhere in the digital era’.

‘We remain very excited about the growth of China’s consumption economy, which is benefiting from the acceleration of digitalization in all aspects of life and work,’ he noted.

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