- BABA shares dropped by over 7% on Thursday, following the earnings release.
- Alibaba missed sales and profit expectations, citing increased spending in investments in quick commerce, user experiences and technology.
- Stocktwits sentiment for BABA turned ‘bearish’ from ‘neutral.’
Already under pressure, shares of Alibaba Group Holding fell 7.1% on Thursday – marking their steepest single-day decline in more than five months – after the Chinese tech giant reported quarterly results that missed analysts’ expectations.
Shares recovered modestly, up 0.9%, in overnight trading.
BABA Results Recap
Third quarter revenue rose 1.7% to 284.8 billion Chinese yuan ($40.7 billion), missing estimates of 289.72 billion Chinese yuan. More importantly, net income dropped 66.3% to 15.6 billion Chinese yuan, with earnings per ADS (EPS) of 7.09 Chinese yuan, well below the Street estimate of 10.94 Chinese yuan.
Alibaba said the net income decrease was primarily due to a 74% drop in operational income, which was impacted by investments in quick commerce, user experiences and technology.
Alibaba’s core e-commerce business remained under pressure, with growth of 6%, with overall performance boosted by the company’s cloud unit, where revenue beat expectations with a 36% increase.
The results underscore continued sluggish consumer activity in China even as Alibaba engages in an expensive discount war with Meituan and JD.com to expand its quick commerce business, Ele.me.
Analysts’ Reaction
Jefferies lowered its price target on BABA stock to $212 from $225, but kept a ‘Buy’ rating, noting Alibaba’s lofty forecast of $100 billion in AI and cloud revenue in five years. Jefferies stock target implies a 58% upside.
US Tiger Securities raised the stock to ‘Buy’ from ‘Neutral,’ but trimmed its target to $175 from $180, implying a 30% upside. The research firm said it believes the stock's valuation is becoming more attractive amid Alibaba's strengthening AI momentum.
More analysts have become bullish of late, citing its strong AI positioning even as the stock has declined. BABA shares are down about 15% year to date, and about 30% from their peak last October.
Currently, 38 of 42 analysts recommend ‘Buy’ or higher on the stock, three recommend ‘Hold,’ and one recommends ‘Strong Sell,’ per Koyfin data.
Still, retail traders are on the fence. On Stocktwits, the retail sentiment dropped to ‘bearish’ from ‘neutral’ after the earnings. “$BABA they delayed their release while keeping positive news flow only to miss earnings. Holding a giant bag. Terrible action,” a user remarked.
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