Alibaba Likely To Struggle With Cloud Growth, Analysts Say; Needs New Growth Driver For Other Businesses

• U.S. and China’s geopolitical tensions wiped off significant stock price gains of Alibaba Group Holding Limited (NYSE: BABA) from recent restructuring plans.

• Alibaba’s organizational revamping plans instilled investor optimism over a valuation boost and drove chances of listing those units publicly, Bloomberg reports.

• Investors expected the restructuring and the subsequent IPOs to ward off the downside from the sudden halt of Ant Group’s IPO in 2020.

• Unfortunately, the geopolitical frictions, concerns about broader weakness in sentiment for Chinese equities, questions about the potential initial public offering pipeline, and a lack of growth catalysts are weighing on the stock’s outlook.

• As a forerunner for the nation’s consumption patterns, analysts have slashed its earnings forecast by around 5% since March, according to Bloomberg, citing concerns about the sky-high unemployment rate and decelerating private investment.

• The macro headwinds posed obstacles to IPO fundraising. Last week, Alibaba slashed prices for its cloud services implying its willingness to surrender more profits this year to keep business away from rivals like Tencent Holdings Ltd (OTC: TCEHY). Continued share sales by SoftBank Group Corp (OTC: SFTBF) (OTC: SFTBY), an early and critical investor, are also straining prospects.

• However, Goldman Sachs flagged Alibaba’s silver lining, citing a better product mix at its Taobao platform, artificial intelligence efforts, and a valuation recovery story. Goldman’s top pick in China’s Internet sector trades at its steepest-ever discount to net asset value.

• Bloomberg analysts expect Alibaba to likely struggle to revive its overall revenue growth with the cloud alone and identify a new growth catalyst for each of the other four businesses, excluding cost-cutting moves, to support any premium valuation.

• Alibaba’s U.S. stock price YTD lags behind Tencent but still outperforms its e-commerce rivals JD.com Inc (NASDAQ: JD) and PDD Holdings Inc (NASDAQ: PDD).

• Price Action: BABA shares traded lower by 0.74% at $83.54 premarket on the last check Tuesday.

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