Alibaba (BABA) has revealed its decision to postpone the initial public offering (IPO) of its Freshippo grocery division and abandon the spin-off plans for its cloud unit.
The cloud unit, crucial for Alibaba’s venture into generative artificial intelligence, has been a focal point for the company’s expansion efforts. However, Alibaba attributes its decision to the potential impact of new US regulations on exports of computing chips and semiconductor manufacturing equipment to China.
In a statement, the Chinese e-commerce giant expressed concerns: “We believe that these new restrictions may materially and adversely affect Cloud Intelligence Group’s ability to offer products and services and to perform under existing contracts, thereby negatively affecting our results of operations and financial condition.”
This development poses a significant challenge to Alibaba’s longstanding strategy to divide into six separate entities, aimed at satisfying regulators in Beijing and driving growth.
Alibaba has also opted to pause the IPO of its Freshippo grocery division to assess market conditions and other factors.
Despite this setback, Alibaba reported second-quarter adjusted earnings of 49.24 billion yuan (approximately $7.2 billion USD) and an 8.5% annual increase in revenue to 224.79 billion yuan (around $31 billion USD).
Additionally, the company announced its inaugural annual dividend, demonstrating its commitment to delivering shareholder returns, with a proposed cash payout of $1 per American depositary share. This move, approved by the board of directors, will cost the company $2.5 billion.
Since its 2014 IPO, Alibaba has seen positive returns in December only twice, with an average negative return of 5.12% during December periods. This historical stock price performance suggests that December has generally been challenging for Alibaba’s stock, with negative returns being the norm.
This might present an opportunity to acquire the stock just before the festive season, potentially allowing for gains that could fund a delightful holiday in early 2024.
For those who believe in the business’s fundamentals, a longer-term holding strategy may be more suitable. However, vigilance is crucial, considering the ongoing challenges faced by the company and the significant uncertainty influencing its future trajectory.
A synthesis of projections from 17 analysts on TipRanks over the previous quarter indicates a 12-month average price target of $128.24 for Alibaba. This suggests a potential upside of 75% from its current price, leading to an overarching strong buy recommendation. In the current month, Alibaba has received 16 Buy ratings, 1 Hold rating, and 0 Sell ratings.
On a positive note, there is potential for the stock to reach $155, representing a significant gain for investors. Despite this optimistic outlook, the e-commerce giant, which surged during the early months of the COVID-19 pandemic, has disappointed investors, with its shares plummeting 74% since its all-time high in 2020.
Nevertheless, Alibaba experienced a 14% growth surge in the previous quarter. Analysts anticipate a return to the usual single-digit growth pattern in upcoming reports, with projected earnings expected to increase by 10% and reach $2.11 per share. This aligns with the consistent trend of surpassing analyst profit targets observed in the company’s past performance.