Investors have been buying the big dip in Alibaba’s stock price.
Analysts at Citigroup have slashed their target price on
Despite this, they continue to consider the Chinese IT giant as appealing to investors.
This is mostly related to pricing. After all, Alibaba (ticker: BABA) lost over half of its value in 2021 due to increased regulatory challenges and fears about slowing growth. According to Citi analyst Alice Yap, the current price is “an appealing entry for investors constructing fresh positions” at this time, according to a report published Monday.
The fact that Alibaba is now cheap enough to acquire has accelerated momentum among investors eager to take advantage of the significant drop in the stock price. Alibaba’s stock on the New York Stock Exchange has risen about 8% this year, and the stock was up nearly 1% in premarket trade on Monday.
Many analysts agree with Yap, including Danny Law of Guotai Junan Securities, one of China’s largest investment banks. According to Law, the primary reason investors have been buying Alibaba stock recently is pricing, followed by other considerations such as high-profile investor action and a clear regulatory picture.
However, there are still reasons to be wary about Alibaba.
Citi lowered its target price for the stock to $216 from $234, while Yap maintained her Buy rating. This means a 66 percent increase in price from Friday’s close. And it puts Citi on the positive side; the average target price for Alibaba among the dozens of analysts whose estimations are tracked by FactSet is $194.68.
Yap attributed the target price reduction to “challenging macro and continued deteriorating consumption demand,” bringing Citi’s assessment in line with that of analysts at investment banking company Benchmark as well as J.P. Morgan.
According to data, Chinese internet consumption is declining, and retail sales slowed significantly in November. Alibaba may be hurt harder than its peers since it is more reliant on discretionary spending on items like cosmetics. As part of the broader trend, Yap mentioned declining revenue growth from Alibaba’s huge Singles Day sales event.
Customer management revenue (CMR), which comes from services like marketing on Alibaba’s platforms and is a critical source of sales for the corporation, is hurting as consumption slows. CMR growth has slowed in the current quarter, according to Yap and others.
“In the near term, we expect general demand sentiment and market circumstances will remain subdued,” Yap said, referring to the Winter Olympics. “We are positive about the potential boost it may bring when the market rebounds,” the analyst said of reorganizations to better link platforms Taobao and Tmall.