Should You Buy Shares of This E-Commerce Stock on the Post-Earnings Dip?

This E-commerce giant, which is headquartered in Hangzhou, China, operates through various business segments, including…

Taobao, Alibaba.com, Tmall, and Alibaba Cloud. Alibaba Group Holding Limited (BABA – Get Rating) 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…

 

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