BABA with Nobias technology: Can Alibaba Shares Overcome Regulatory Pressures and Continue Their 2022 Rebound?
We’ve covered Alibaba several times in recent months at Nobias Finance; however, the stock continues to be one of the most reported on names, by both Wall Street analysts and the credible authors that we track who cover the equity space, because of its large size and the volatility that its shares continue to experience.
BABA ended 2021 on a down note, closing the year near its current 52-week low of $108.70. This ~$109 level was roughly 60% below BABA’s 52-week high price of $274.29. This significant sell-off continues to drive interest from dip buyers who are brave enough to attempt to time the bottom. And yet, the negative momentum that the stock has experienced during the last year or so remains largely in place, meaning that contrarian investors continue to struggle with this stock.
In today’s piece we wanted to take another look at the BABA narrative to see if anything significant has changed, with regard to the macro hurdles that the company faces and/or the outlook on the Nobias community (which, in the past, has been very bullish on BABA). To start things off, we’ll take a look at a recent report published by Billy Duberstein, a Nobias 4-star rated author, which covers the ongoing pressure that Chinese regulators are putting on this company.
Duberstein said, “The market remains focused on the activity of Chinese regulators and the company’s attempts to get out of regulatory spotlight. In case Alibaba is able to get back to “business as usual” without the constant pressure from regulators, its shares will get immediate support. However, it remains to be seen whether Alibaba will have this opportunity in 2022. He continued, “China has firmly decided to curb the power of tech companies, and the country does not look worried about financial consequences of its moves.” With this in mind, he notes that one of the latest headlines directly related to regulatory pressures was the catalyst which caused a recent BABA sell-off.
Duberstein touched upon reports that Alibaba was interested in selling its interest in Weibo to a state owned media enterprise, which sparked fear amongst investors that ongoing pressure was still being put onto the eCommerce giant by the Chinese Communist Party. Duberstein said, “According to the report, Alibaba wants to sell its stake in Weibo to reduce its influence in the media sphere. The company aims to become less powerful in this important market segment due to the pressure from Chinese authorities, who have been focused on limiting the power of Chinese tech companies this year.”
In a separate article by Duberstein published at The Motley Fool in late December, he continued to discuss the bearish regulatory hurdles that BABA faces saying, “On Sunday, Gan Lin, the chief of China's Anti-Monopoly Bureau, said that his unit would step up enforcement of anti-monopoly rules and regulations. While much progress has already been made, Gan claimed that some businesses in China's new tech economy have faced "insufficient punishment" for anti-competitive behaviors.” He continued, “This likely wasn't what Alibaba or Chinese technology investors wanted to hear, as Alibaba has already been through so many regulatory assaults over the past year. Many likely hoped the campaign would be coming to an end by now, but Gan's comments seemed to throw cold water on that thought.”
Chris Lau, a Nobias 4-star rated author, published an article at Baystreet in early January which put a similar spotlight on the regulatory issues that BABA faces. Like Duberstein, Lau highlighted the recent Weibo issue, as well as the billion dollar contributions that BABA has pledged to make to the Chinese Communist Party’s “Common Prosperity” plans, as recent punishments that Alibaba has faced due to alleged anti-competitive behavior. Lau also said that “Beijing reportedly halted its cloud partnership [with Alibaba]. The government said that Alibaba did not tell China’s communications regulator about the Apache Log4j2 vulnerability.”
Lau wrote, “The CCP never forgets those who speak against it.” And therefore, it’s unclear as to when, or even if, the regulatory headwind will be lifted from BABA’s shoulders. Lau said, “In the year ahead, the government will weaken Alibaba’s dominance. This will give competitors in the e-commerce, video, and cloud markets a chance to take market share. Investors are expecting revenue growth to slow to around 20% Y/Y. BABA stock reflects the dramatic slowdown.” And therefore, with these seemingly artificial pressures being put onto BABA, it’s very difficult for investors to evaluate the company (due to uncertainties surrounding its medium-to-long-term fundamental growth outlook).
Tyler Bundy, a Nobias 4-star rated author, recently published an article at Bezinga which included technical analysis of BABA shares. In his piece, Bundy points out that Alibaba shares are “nearing resistance in what traders call a downward channel. The stock has been unable to cross the pattern resistance in the past which has led to a downward trend. If the stock can cross above this resistance line it may see a change in trend and could begin to form an upward trend.”
He continued, saying, “The Relative Strength Index (RSI) has been climbing higher the past month or so and sits at 60. This shows buyers have been moving back into the stock and signals a reversal may be happening.” He concluded the report saying, “The price has been moving in this downward trend for months and now looks like it may be starting to turn around. If the price can cross back above the pattern resistance, it may be a hint the stock is seeing a reversal and could begin to start climbing for a period of time.”
Thus far in 2022, BABA shares are performing well. As of January 19th, they’re up 8.26% on a year-to-date basis. So, it appears that the technicals that Bundy points out have merit. Furthermore, it’s not just a technical story at play here. ValueInvestingNews, which is a Nobias 4-star rated author, recently published a report which highlighted the fact that famed value investor, Charlie Munger, who is famous for his fierce focus on company fundamentals and attractive margins of safety, recently added to his Alibaba position.
Anusuya Lahiri, another Nobias 4-start rated author, recently published two pieces at Bezinga, both of which highlight recent bullish calls made by Wall Street traders. In this article, Lahiri points out that Benchmark analyst, Fawne Jiang, re-interated a “Buy” target on BABA shares with a $235 price target (which implied upside potential of roughly 94% on January 6th when the call was made). And in this article, Lahiri highlights a bullish outlook on BABA shares by Stonehorn Global Partners CEO Sam Le Cornu. She quoted Le Cornu as saying, "Based on valuations and the earnings outlook, we see that it's a buying opportunity."
Overall, when looking at the data collected by the Nobias algorithm, it appears that the credible authors that we track continue to agree with the bulls when it comes to BABA shares. 86% of recent articles published by credible individuals (those with 4 and 5-star ratings) have expressed a “Bullish” sentiment. And, when looking at the credible Wall Street analysts that we track (once again, those with Nobias 4 and 5-star ratings) we see an average price target of $207.14 being attached to BABA shares.
Today, after the stock’s strong year-to-date rally, BABA trades for $123.23. Therefore, with this $200/share price target in mind, we’re talking about upside potential of approximately 60%. Needless to say, the tug-of-war between the bulls and the bears here, largely driven by macro uncertainties related to Chinese regulatory pressure on Alibaba’s business which might limit its ability to grow, continues to rage on. And, there doesn’t appear to be a clear end in sight here. However, the credible authors and analysts that we track appear to be willing to stomach this regulatory risk because of the relatively cheap valuation being applied to shares.
Disclosure: Nicholas Ward has no BABA position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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