Wall Street still not keen on Alibaba’s shares
Alibaba investors may be feeling a bit disoriented by the deluge of recent news about the company.
Some has been bad, especially a warning Tuesday that thirdquarter sales volume on the company’s e-commerce sites is tracking below expectations.
Some has been good, including plans for a new sports-related business and a report late last week that the company’s two largest individual shareholders — chairman Jack Ma and vice-chair Joseph Tsai — are looking to borrow money against their stakes.
And on Wednesday, Yahoo announced that the Internal Revenue Service declined to endorse its plan to spin off its huge Alibaba stake on a tax-free basis.
Alibaba shares jumped more than 5% on the news (they were down about 0.4% in pre-market trading Thursday). That leap came even though two analysts cut their price targets on the company, a welcome move after the volatile stock scraped new lows this week. Yet amid the crosscurrents, one thing has remained consistent: Wall Street continues to sour on Alibaba’s profitability this year.
Analysts who cover Alibaba shares have reduced their profit estimates on the company signifi- cantly since its earnings call in late July.
Average earnings estimates for the second half of 2015 have dropped to $1.45 a share, from $1.55 a month ago and $1.58 in June. Look for those numbers to fall further now that Pacific Crest Securities and Cantor Fitzgerald both hacked down their price targets on the stock — although they maintained their buy ratings. Cantor’s Youssef Squali dropped his target to $88 a share from $95, and Cheng Cheng at Pacific Crest slashed it to $80 from $94.
If Alibaba executives Ma and Tsai follow through on their plans to secure loans against their stakes — rather than begin selling after their IPO lock-ups expire in mid-September — that may help build confidence on Wall Street.
Yet the IRS decision could complicate plans, though Feds may ultimately approve it, as Yahoo noted in a securities filing.
Plus, the fact Alibaba’s revenue rose slower than its gross merchandise value (GMV) during the quarter ended in June suggests the company is making less on every transaction amid increased competition. GMV, the total value of transactions sold through a particular online marketplace, is one indicator of how well an ecommerce site is performing.
It all adds up to a bearish near term for Alibaba shares.