Alibaba (BABA) stock opened at $113.10 on Tuesday, sitting well below its 12-month high of $192.67. The stock’s latest headwind came after Bernstein SocGen analyst Robin Zhu trimmed his price target from $180 to $165, though he kept his Buy rating intact.
Alibaba Group Holding Limited, BABA
The cut follows Alibaba’s $10.2 billion equity raise in Hong Kong, a move that caught some investors off guard. With over $30 billion in net cash on hand, many questioned why the company needed to tap markets at all. Zhu acknowledged the timing and optics hurt sentiment and raised doubts about management’s return on investment claims tied to capital expenditure.
Zhu updated his model to lift server cost and rental price assumptions while also raising non-AI cloud revenue forecasts. His new $165 price target is based on a sum-of-the-parts valuation, looking at Alibaba’s e-commerce and cloud units separately using forward revenue and profit figures, then cross-checking against 15x next-year earnings.
On the cloud side, Zhu’s model for the Zhenwu 810E chip points to a three-year payback period, while early data on the newer M890 chip suggests a faster 2.5-year payback. Rising server rental prices and tight market conditions are seen as supporting faster cloud growth ahead.
The analyst said higher capex now should eventually lead to stronger Alicloud revenue growth and margin expansion. The target of $100 billion in external cloud revenue by FY31 would require close to RMB1 trillion in capex. The recent raise partially fills that funding gap, though Zhu noted a larger raise might have done more to settle investor nerves.
Alibaba’s most recent quarterly results added to the mixed picture. Revenue came in at $39.64 billion for the quarter, up 8.6% year over year and slightly above the $39.52 billion estimate. But EPS of $1.26 fell well short of the $1.94 consensus, missing by $0.68.
On the insider front, BABA President J. Evans sold 720,000 shares at an average of $94.95 per share on June 29, a 96% reduction in his ownership. In contrast, CEO Yongming Wu bought 350,000 shares at $14.24 each on August 24, lifting his stake by 34.5%.
Rep. Gilbert Ray Cisneros Jr. (D-CA) sold between $100,001 and $250,000 in BABA stock on July 24, according to a congressional disclosure filed September 4.
Several hedge funds added to positions in the first quarter. Aureus Asset Management lifted its stake by 511%, while Teachers Retirement System of Kentucky increased its position by 24.5%.
Wall Street overall holds a Moderate Buy consensus on BABA, with 15 Buy ratings, two Strong Buys, and five Holds.
The average price target of $187.45 implies roughly 66% upside from current levels. Robert W. Baird cut its target from $164 to $160 on August 21, while Morgan Stanley raised its target to $190 in May.
BABA stock has a 50-day moving average of $116.54 and a 200-day moving average of $124.56.
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