Alibaba's Earnings Are Expected To Impress Wall Street This Quarter.

Alibaba has emerged as a favorite stock among Wall Street banks since the turn of the year.

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The stock is rated as a "buy" by almost all of the analysts who cover it - 93% - according to FactSet. According to them, it has an average upside potential of 43%.

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On Thursday, the Chinese tech giant, which encompasses a number of segments including e-commerce, technology, and the internet, is expected to present its earnings for the December quarter. A recent analysis of Wall Street research reveals a longer-term bullishness on the stock, though analysts warn that the stock could face short-term pressure in the short term.

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Morgan Stanley

It is estimated that Alibaba's revenues will be 1% below what is expected by Morgan Stanley. However, the company expects to be able to achieve a 5.2% year-on-year increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which is in line with the company's estimate, of 47.1 billion Chinese yuan ($6.87 billion).

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For the first time in three years, the bank has named Alibaba its top pick in the Chinese tech sector.

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“There is no doubt that Alibaba is going to be the top pick in China's Internet industry in 2023. As a result, the most attractive risk-reward ratio in the industry is being driven by a number of catalysts (reopening, cost optimization, regulatory easing, cloud reacceleration, and valuation)," the bank said.

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Morgan Stanley expects Alibaba to benefit from a recovery in consumption in China as it opens up, along with improved efficiency across segments as it opens up, as well. Based on the company's ability to generate strong cash flow and to maintain a stable share repurchase program, the company believes that its stock is trading at an "attractive price."

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There is a base-case price target of $150 on Alibaba and a bull-case price target of $200 based on Morgan Stanley's analysis of the company. The stock of the company closed at around $100 in U.S. trading on February 17, giving it a 50% potential upside from the base-case price target of $100.

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Goldman Sachs

There is also a bullish view of Alibaba from Goldman Sachs. Alibaba was added to the bank's conviction buy list last month by analyst Ronald Keung, who thinks the company is the best way to bet on a rebound in the Chinese internet sector.

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This earnings season, Goldman Sachs anticipates that three Chinese e-commerce names will deliver profit beats this earnings season, including Alibaba. "We think that the downward revision cycle in earnings that has been going on for the last two years has probably bottomed out," Goldman said, giving Alibaba a price target of $138 per share.

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Mizuho

In the opinion of Mizuho Securities analyst James Lee, Alibaba is a "defensive play" against China's uncertain macroeconomic outlook, but he does expect the country's internet sector to have a semi-soft quarter this quarter.

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Lee stated he expects Alibaba's gross merchandise value - which is used to measure Alibaba's total e-commerce sales - to decline by 3.5% from a year ago, which is better than the consensus estimate of a 13% decline. In 2023, he does, however, expect gross merchandise value to reach an "inflection point" and begin to grow, which will lead to increased revenues. 

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“As far as the stock price is concerned, only core commerce and cloud are priced into the stock, and new investments such as food delivery, online video, and payments are free-to-call options,” the bank stated, giving the stock a price target of $155.

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Foord Asset Management

Research head and portfolio manager Ishreth Hassen believes investors will focus on revenue growth at Alibaba, which declined 4% and 6% year-on-year in U.S. dollar terms over the prior two quarters.

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Considering how cheap the stock is, Hassen believes that accelerating revenue growth and rising margins will be very positively received by the market.

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“All eyes will be on Alibaba's revenue growth trajectory and forward guidance this quarter, even though we do not forecast earnings on a quarterly basis. Since China lifted its covid zero policies only in December, the policy shift would not have had a meaningful effect on 4Q earnings," Hassen said.

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“However, management should have ample insight into 1Q23 given that we are more than halfway through the current quarter.”

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