Alibaba
Recently, there was some optimism that policymakers were getting ready to change their approach given the weakness in the economy and President Xi securing his third term. However, this doesn't seem to be the case as the country has reinstated its lockdowns following another surge in case counts, even though it has triggered mass protests across the country.
Overall, Alibaba shares are down 32% YTD. More concerning for long-term holders is that the stock is off by more than 75% from it's all-time high in late 2020. Although shares are quite attractive from a valuation basis, there is significant risk embedded in the stock given a variety of uncertainties like the relationship between the U.S. and China, China's regulatory ambitions, the faltering economic growth in China, and the continued harsh zero-COVID policies.
Inside the Numbers
In Q3, Alibaba reported $1.82 in earnings per share which topped expectations of $1.70 per share in earnings. However, the company fell short on the top line at $29.1 billion vs expectations of $29.6 billion. In total, this was a 15% increase in earnings and a 3% jump in revenue. This is a welcome relief as the last quarter saw a 4% drop in revenue - the first in the company's history.
On its conference call, the company noted a variety of uncertainties that were impacting its business such as the lockdowns in China, an increase in regulations, a worsening global economy, and supply chain and logistics issues. However, it did say that it expects revenue growth to return to a double-digit rate over the next 3 years.
Alibaba's earnings are a sobering reminder that the challenges facing China won't easily be resolved despite investors' recent optimism following rumors of relaxation of COVID policies and constructive dialogue between President Joe Biden and President Xi at the G20 summit.
