Shares of China’s e-commerce giant Alibaba Group (NYSE: BABA) surged by 14.8% on May 26 after the company announced its fiscal fourth quarter of 2022 results ended in March. In Q4, Alibaba reported revenue of $32.1 billion with adjusted earnings per share of $1.24. Comparatively, Wall Street forecast revenue of $29.9 billion and adjusted earnings of $1.10 per quarter for Q4.
We can see that BABA stock surged as it beat consensus revenue and earnings estimates comfortably. While its sales were up 9% year over year, earnings fell by 23% in fiscal Q4.
In a press release, Alibaba’s CEO Daniel Zhang stated the company “delivered on the goal of serving one billion annual active consumers in China this past quarter" and that the company achieved a record gross merchandise volume (GMV) of $1.3 billion for the full year, despite “macro challenges" and supply chain issues.
However, Alibaba also emphasized that the risks and uncertainties arising due to COVID-19 meant it can’t provide any guidance for Q1 or fiscal 2023. We have seen China recently imposed lockdown restrictions in several cities which has exacerbated supply chain issues but has also acted as a tailwind for Alibaba and other e-commerce businesses.
In fiscal 2023, Alibaba aims to focus on generating sustainable growth while optimizing its cost structure to tide over an uncertain macro environment.
Is Alibaba stock a buy?
Alibaba is one of the best tech stocks to buy given China’s massive population of 1.4 billion.
Over the years, Alibaba has provided a robust platform connecting buyers and sellers in China’s burgeoning e-commerce market.
Similar to Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Alibaba is also eyeing the public cloud segment and is the fourth-largest player in this vertical which will be a key driver of sales going forward. Additionally, Alibaba has entered into a joint venture agreement to manufacture battery-powered vehicles.
Alibaba depends on the widening manufacturing capabilities of China. Several manufacturers have temporarily closed factories due to COVID-19-related lockdowns which reduced Alibaba’s ability to benefit from higher e-commerce sales.
The ongoing war between Russia and Ukraine as well as the crackdown of the Chinese government on domestic tech companies have increased risks associated with investing in Alibaba and other such stocks based out of China.
Right now, BABA stock is down 70% from record highs and has returned a marginal 0.63% since the company went public eight years back.
Investors are worried about Alibaba’s slowing revenue growth. In the last four quarters, Alibaba reported revenue of $125 billion which was an increase of 20% year over year. However, its net income has fallen in this period due to rising expenses and impairment costs.
What next for BABA stock and investors?
Alibaba’s less than impressive performance has meant the company is valued at $258 billion by market cap. Despite a slowdown in sales, Alibaba is forecast to increase sales by 11.5% year over year to $142.3 billion in fiscal 2023. Comparatively, its earnings are forecast to expand to $7.93 per share which is in line with its earnings in 2022.
BABA stock is valued at less than two times forward sales and a price to earnings multiple of 11.9 which is quite reasonable.
There is a good chance for Alibaba stock to move lower in case market sentiment remains bearish. However, every major pullback should be viewed as an opportunity to buy stocks at a discount. BABA stock is trading at a discount of more than 75% compared to Wall Street average price target estimates.