We decided the stock’s price could eventually fall below our $152 price target when the pace of fund inflows started to slow in mid-August despite the stock’s diminishing valuations. Institutional investors had also likened investments in Chinese tech stocks as a “wild bet” under the uncertain regulatory landscape, foreshadowing Alibaba’s imminent downward valuation adjustment at the time. We pointed to how Beijing’s intensified cybersecurity oversight and antitrust crackdowns on the tech sector have introduced significant regulatory overhauls that could continue to expose Alibaba’s valuation prospects to additional pressure. However, the transition from a fintech company to a financial holding company following the restructuring orders has weighed on its valuation, as the latter business model typically warrants a much lower valuation.Īt the time of our initial coverage on the stock, Alibaba’s exit multiples had already declined by more than 16% in the trailing 12 months. For the most part, regulatory changes ordered on Ant Group have not impacted the business from a fundamentals point of view. A prime example of how China’s aim to rein in the nation’s tech giants will impact valuation prospects while leaving fundamentals untouched is the restructuring of Ant Group after the highly-anticipated IPO was pulled at the last hour in late 2020. Instead, we considered much of the price pressure to come from impacts on Alibaba’s valuation prospects, as investors start to acknowledge the regulatory risks of investing into Chinese tech stocks and price in the new reality. The key assumption behind our price prediction was not so much from the outlook on Alibaba’s fundamentals, which we expect to remain strong. On this basis, we are revising our outlook on the stock from bearish to neutral. Nonetheless, we believe Alibaba’s current price level at the low-$150s is reflective of its estimated intrinsic value amidst the new normal. Source: Author's rating on Alibaba stock.Īlibaba’s stock will continue to be plagued by volatility in the foreseeable future, considering its operations under the new rules and regulatory changes will likely not become clearer and stabilize until at least a year or two later. As a result, we expect Alibaba’s stock to remain sensitive to ongoing issues regarding both China’s regulatory environment, as well as slowed economic growth prospects as investors continue to price in the new reality. The recent declines indicate that both institutional and retail investors are beginning to acknowledge the regulatory risks involved in investing in Chinese tech stocks like Alibaba, and these concerns have begun to outweigh the strong financial prospects of the underlying business. Now that Alibaba’s stock price has reached our target price level after falling to its lowest point in more than two years at the low-$150s, we look to what is ahead for the stock. And as uncertainties surrounding China’s regulatory environment on the internet sector continued to brew into mid-August, we had correctly revised our outlook that the stock would fall through the $152-level as it continues to remain sensitive to changes in China’s regulatory environment. In late July, we had predicted that the Alibaba (NYSE: NYSE: BABA) stock would fall to $152.
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