By Emily Bary
Alibaba in the age of COVID-19: While concerns still exist about Chinese e-commerce giant, executives point out that SARS outbreak helped boost digital transition previously
This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published April 14.
The COVID-19 outbreak put a damper on Alibaba Group Holding Ltd.'s fast growth, and challenges are expected to continue even if China has managed to better control its coronavirus situation.
The e-commerce giant warned of a "negative impact" to its business because fewer people were available to produce goods and deliver packages to customers' doorsteps when Chinese cities went into lockdown after the Lunar New Year holiday. While supply issues seem to have eased, there are now questions about how consumer demand for e-commerce products is holding up amid a period of global economic uncertainty and continued unease about germ spread.
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"[W]e believe the company will remain materially exposed to a global-scale recession," RBC Capital Markets analyst Mark Mahaney wrote in mid-March, as the company's commerce segment is a key contributor to overall revenue.
Alibaba's (9988.HK) management team appears upbeat that the company will emerge from the crisis in a stronger position than ever, though. The SARS epidemic in the early 2000s helped Chinese consumers become accustomed to making online purchases, and the hope is that the COVID-19 pandemic will usher in even more digital adoption, including online grocery services and remote-working tools.
What the numbers are saying
Revenue: Though Alibaba executives didn't give numerical forecasts on the company's last earnings call in February, the tone of their commentary prompted analysts to bring down their estimates for the March period.
Analysts surveyed by FactSet modeled RMB107.7 billion ($15.2 billion) in revenue for Alibaba's fiscal fourth quarter as of the end of March, about in line with what they were projecting at the end of February but down from the RMB126.2 billion modeled at the end of January. Estimates for the full calendar year dropped to RMB472.6 billion from RMB483.5 billion.
Earnings: Estimates for March-quarter earnings per share fell to RMB6.68 in late March from RMB9.75 in late January. For the full calendar year, they declined to RMB47.30 from RMB47.73.
Stock movement: Alibaba shares dropped 8.3% during the quarter, as the KraneShares CSI China Internet ETF (KWEB) fell 7%. The S&P 500 lost 20% over that span.
Analysts remain overwhelmingly upbeat about the name: 56 of those surveyed by FactSet rate the stock a buy, and one other rates it a hold, with an average price target of $258.53 as of April 14.
What the company is saying
Feb. 13: Alibaba's management disclosed on an earnings call that the company saw a "negative impact on our commerce business" in the two weeks after the Lunar New Year holiday ended, as "demand for goods and services is there" but many packages weren't able to be delivered on time. Based on what the company saw during the first 13 days of February, it expects that overall revenue growth will be "negatively impacted," while some businesses like local consumer services and Chinese retail marketplaces could see negative revenue growth.
Negative growth in the China retail marketplace business would mark a sharp reversal for a segment that grew 36% in the December period.
Feb. 10: Alibaba announced it would provide free services to Chinese businesses as they dealt with the COVID-19 outbreak. The company reduced or waived some platform fees, provided subsidies to delivery workers, and offered free use of its Dingtalk work-from-home services.
What analysts are saying
-- "We expect all levels of government will move aggressively to digitize services and that stimulus efforts around infrastructure will be a significant driver of cloud demand," which could benefit Alibaba's cloud business, wrote Loop Capital's Rob Sanderson in an April 2 research note. He noted that online retail seems to be picking up nicely while other areas of the Chinese economy have been more sluggish. Sanderson has a buy rating and $280 target price on the shares.
-- Alibaba could be among "the most disrupted" companies during the COVID-19 outbreak, wrote RBC Capital Markets analyst Mark Mahaney in a March 20 note to clients. He previously warned that the company would be "materially exposed" to a global recession, though he continues to rate the stock at outperform with a $235 target.
-- "We expect logistics capabilities (ex-Hubei) for Cainiao's network is back to normal operations with close to 3 million delivery personnel," wrote Jefferies analyst Thomas Chong on March 15, referring to Alibaba's logistics network. He called Alibaba a "tier one top pick" in an April 9 note to clients, while reiterating a buy rating and $280 target.
-- "We expect the impact of coronavirus to be largely contained to the March quarter with improved growth resuming in the June quarter," wrote Raymond James analyst Aaron Kessler, who has a strong buy rating on the stock. He said in a March 16 report that he is also "comfortable with our Alibaba estimates for the March quarter, which assume flat revenue growth year over year for the core marketplace segment."
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
April 14, 2020 19:10 ET (23:10 GMT)
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