Alibaba’s low growth may be a longer-term headwind than previously thought, according to Bernstein. The firm downgraded Alibaba stock to market perform from outperform on Tuesday. It also cut its price target to $98 per share from $130. Bernstein’s new forecast implies nearly 15% upside from Monday’s close of $85.47. “We upgraded Alibaba a year ago on the basis that the stock had discounted perpetual low growth, and that reopening would help support growth via better category mix. Alibaba’s shares have traded in a range since — but while they remain cheaply valued, perpetual low growth no longer feels like an aggressive bear case,” analyst Robin Zhu said. Zhu added that Alibaba is also contending with more issues beyond low user engagement and pointed toward higher search costs stemming from merchant crowding which is hitting merchant return on investment. BABA YTD mountain Alibaba’s U.S. listed shares have slipped nearly 3% from January. “Alibaba’s decision to spend on user time spent and engagement raises questions about [monetization] and core FCF [free cash flow] generation,” Zhu said. Meanwhile, Zhu noted that while Alibaba’s stock remains relatively cheap, which underpinned the firm’s upgrade last year, increased competition may be too strong of a force to combat with efforts like stock buybacks and juicing earnings per share. “Alibaba’s shares remain modestly valued, and its buybacks meant the share count fell 2.4% year on year at the end of FY23 versus a year prior,” he said. “But the future lasts a long time, and we’re unconvinced that low multiples and modest EPS accretion can drive durable share price performance if the competitive problem in core e-commerce remains unresolved.” — CNBC’s Michael Bloom contributed to this report.
