Alibaba cut to Market Perform at Bernstein
maybefalse/iStock Unreleased via Getty Images
Alibaba (NYSE:BABA) was downgraded at Bernstein to Market Perform from Outperform with a price target of $98, down from $130.
Bernstein analysts said that they upgraded Alibaba a year ago on the basis that the stock had discounted perpetual low growth and that reopening would help with growth through better category mix. The company's stock has traded in a range since, however, while it remains cheaply valued, perpetual low growth no longer feels like an aggressive bear case.
The Chinese e-commerce giant's GMV growth will show improvement in the June quarter, meanwhile merchant feedback has continued to point to lower marketing spend intentions, the analysts added. Quarterly comps get harder from here, which the analysts worry contributes to value trap risk.
The analysts think that Alibaba's problem is not just a lack of user traffic, but merchant crowding driving up search costs, and pressuring merchant ROI. While total user engagement for Alibaba's marketplaces seems comparable to PDD (PDD), they're home to ~6M active merchants, almost double PDD.
The firm added that Alibaba's plan to spend on user time spent and engagement raises questions about monetisation and core FCF generation. The new management changes does raise hopes that execution could improve â the new strategy seems to focus on Taobao and smaller merchants. meanwhile, on the other side, an e-commerce industry with 6-7 large players, growing at 8-10%, is arguably just naturally prone to spells of increased competition.
In addition, the analysts noted that Alibaba's stock remains modestly valued, and its buybacks meant the share count declined 2.4% Y/Y at the end of FY23. The analysts added that they were not convinced that low multiples and modest EPS accretion can drive durable share price performance if the competitive problem in core e-commerce remains unsolved.
On the Cloud spin-off the analysts questions relate to the appropriate discount related to potential U.S. sanction risk, private sector business sentiment, and how many Alibaba stockholders would want to sell on day one?
BABA +1.43% to $86.69 premarket June 27
More on BABA 

Alibaba Shows A Much-Needed Silver Lining
Alibaba: High Risk-High Reward
Alibaba: Higher Growth Potential Than You Might Think