After a year of regulatory pressure and, more recently, disappointing quarterly earnings, Alibaba stock has been undergoing a reevaluation by Wall Street.
Some financial analysts have even been making the case that the Chinese e-commerce giant’s competitor, JD.com, may be a better bet.
Alibaba (ticker: BABA) continues to face the music. New research from investment group Susquehanna marks the latest installment in this trend, with a team of analysts slashing their outlook for Alibaba stock as they raised their target for shares of JD.com (JD).
Analysts led by Shyam Patil at the investment group cut their price target on Alibaba stock by 35% Wednesday—from $310 to $200—but maintained their Positive rating. The shares closed at $136.52 Wednesday, so the Susquehanna price target still implies some 46% upside.
Alibaba’s U.S.-listed stock rose 2.2% Wednesday—it wasn’t trading Thursday due to the Thanksgiving holiday. Alibaba ‘s shares that trade in Hong Kong (9988.H.K.) climbed 2.7% Thursday. The stock is near its lowest point since late 2018, and has declined more than 40% in 2021.
“Alibaba has been dealing with a regulatory overhang, and now the slowing macro in China is pressuring the business in the near-term,” the team at Susquehanna said.
Patil’s analysis follows Alibaba’s most recent quarterly earnings—which disappointed investors and analysts alike. The company missed sales and earnings expectations, cut its outlook for the full year, and revealed just how badly profits were pinched by eroding margins.
The gloomy financial results added pressure to a stock that has already been beaten down this year, along with much of the rest of Chinese tech. China’s internet giants have found themselves on the wrong side of regulators as President Xi Jinping tightens his control over the economy, though some experts now believe the worst is over.
But Susqhuehanna’s view, in line with analysts from Deutsche Bank and asset manager Needham, is that there are still reasons to be bullish on Alibaba.
“Although Covid may continue to cause periods of softness in the near-term macro, we continue to view Alibaba as the China e-commerce category killer with a large secular growth opportunity and maintain our long-term-oriented positive view,” they added.
As Patil’s team took the axe to Alibaba’s price target, they elevated estimates for competitor JD.com—raising their price target on the stock by 19% from $80 to $95 Wednesday and maintaining a Neutral rating on the shares.
JD.com ‘s U.S.-listed shares (JD) slipped 0.1% Wednesday with the company’s Hong Kong shares (9618.H.K.) climbing 0.6% Thursday.
With the stock closing at $89.36 Wednesday, that implies some 6% upside. JD.com has climbed 3.5% this year—by no means a stunning performance, but firmly beating the 25% year-to-date fall for the Hang Seng Tech Index, which is also down 42% from its all-time highs in February.
JD.com’s most recent earnings were far more positive than Alibaba’s: the company notched a 25% year-over-year jump in quarterly revenue.
“We continue to like JD’s positioning in the large and growing Chinese ecommerce market,” Patin’s team said, noting that they “see potential for longer term upside from its advertising and logistics initiatives scaling, and like the company’s ability to successfully incubate new businesses.”
However, there are some risks ahead for the stock. “The macro, pandemic, and supply chain issues will likely be headwinds in the near-term,” they added.