E-commerce giant Alibaba Group Holding Limited (BABA), which is headquartered in Hangzhou, China, operates through various business segments, including Taobao, Alibaba.com, Tmall, and Alibaba Cloud. The company has completed several developments over the past few months, especially in the cloud segment. However, the stock has declined 15.5% in price since the company reported its fiscal second-quarter 2022 financials on November 18. BABA missed Street estimates on both top and bottom lines.

Moreover, BABA lowered its revenue guidance for its fiscal year 2022. It now expects revenue growth to be in the range of 20% to 23%, compared to its previous forecast of 27% growth. 

According to a Reuters report, China's market regulator fined several companies, including BABA, for failing to declare 43 deals, asserting that they violated anti-monopoly legislation. Also, BABA’s Singles’ Day sales growth percentage fell to its lowest in its history amid China’s tech crackdown. So, BABA’s near-term prospects look uncertain.

Click here to check out our E-commerce Industry Report for 2021

Here are the factors that could shape BABA’s performance in the coming months:

Consistent Product and Services Innovations

During the 11.11 Global Shopping Festival, BABA used 100% cloud-native technologies with the help of Alibaba Cloud and reduced computing resources by 50% for every 10,000 transactions compared to last year. On November 16, Atlas Air Worldwide Holdings, Inc. (AAWW) expanded its partnership with Cainiao Network, the logistics arm of BABA, to enhance overall shipping efficiency.

In October 2021, Alibaba Cloud unveiled a new in-house processor design for use in its data centers. Also, JPMorgan Chase & Co. (JPM) on September 16 went live with credit card payments processing for Alibaba.com, the B2B business unit of BABA.

Top Line Growth Doesn’t Translate into Bottom Line Improvement

BABA’s top line surged 29.4% year-over-year to $31.15 billion for its fiscal second quarter, ended September 30, 2021. While its revenue from the commerce segment, which accounted for 85.3% of its total revenue, increased 30.7% year-over-year to $26.57 billion, its revenue from the cloud computing segment came in at $3.11 billion, up 33.1% year-over-year.

However, the company’s operating margin was 7%, compared to 9% in the prior-year quarter. Its adjusted EBITDA declined 27% year-over-year to $5.41 billion, while its non-GAAP net income decreased 39% year-over-year to $4.43 billion. Furthermore, its non-GAAP earnings per ADS declined 38% from the same period last year to $1.74.

Lofty Valuation

In terms of forward non-GAAP P/E, BABA’s 16.71x is 5.8% higher than the 15.80x industry average. The stock’s 1.88x forward non-GAAPPEG is 104.9% higher than the 0.92x industry average. Furthermore, its 13.42x and 2.77x respective forward EV/EBITDA and P/Sare higher than the 10.47x and 1.26x industry averages.

POWR Ratings Reflect Uncertain Near-Term Prospects

BABA has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, BABA has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Momentum, consistent with its 23.1% loss over the past month and 35.3% decline over the past six months.

BABA has a D grade for Growth, which is in sync with analysts’ expectation that its EPS will decline 14.9% year-over-year to $2.85 for the current quarter, ending December 31, 2021.

BABA is ranked #25 of 55 stocks in the F-rated China group. Also, click here to see BABA’s ratings for Sentiment, Stability, and Quality as well.

Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in BABA for a 53% gain. Learn more about the RTR service here.

Bottom Line

Amid strict regulatory measures, BABA’s shares have fallen significantly over the past few months. The stock hit its 52-week low of $135.21 yesterday. Also, its EPS is expected to decline in the current quarter. So, we think it could be wise to wait before scooping up its shares.

How Does Alibaba (BABA) Stack Up Against its Peers?

While BABA has an overall POWR Rating of C, one might want to consider taking a look at its A (Strong Buy) or B-rated (Buy) industry peers: Fuwei Films (Holdings) Co., Ltd. (FFHL), FinVolution Group (FINV), and Weibo Corporation (WB).

Click here to check out our E-commerce Industry Report for 2021

BABA shares rose $0.18 (+0.13%) in premarket trading Tuesday. Year-to-date, BABA has declined -41.30%, versus a 26.28% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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