On Tuesday, Morgan Stanley maintained an Equalweight rating on Alibaba (NYSE:BABA) Group Holding Limited (NYSE:BABA) stock with a steady price target of $85.00.
The investment firm anticipates Alibaba's fourth-quarter fiscal year 2024 results, expected in early May, to potentially influence the company's stock value. Alibaba's Customer Management Revenue (CMR) growth and updates on shareholder returns are seen as key factors.
The firm outlined three potential scenarios for Alibaba's upcoming financial disclosure. In the first scenario, the company's 4QF24 CMR is projected to grow by 0-3% year-over-year, reflecting a slower-than-anticipated Gross Merchandise Volume (GMV) recovery and weaker monetization efforts.
This could result in a flat annual dividend of $1 per American Depositary Share (ADS), mirroring the previous fiscal year, and a possible decline in Alibaba's share price by up to 5%.
The second scenario, considered the base case, predicts a healthier CMR growth of 3-5%, supported by a rebound in consumer spending and a reduced loss in market share. This scenario also includes an anticipated F24 annual dividend between $1 and $1.5 per ADS, with Alibaba's share price potentially increasing by 2-3%.
In the most optimistic third scenario, Alibaba's 4QF24 CMR growth could exceed 5% year-over-year, thanks to significant strides in market share retention and better-than-expected monetization rates. This could lead to an annual dividend over $1.5 per ADS and a share price increase of more than 5%.
Investors are now looking forward to the actual results in May, which will confirm which of these scenarios will play out and the subsequent impact on Alibaba's share price.
InvestingPro Insights
Morgan Stanley's projections for Alibaba's upcoming financial results highlight the critical role that the company's Customer Management Revenue (CMR) growth and shareholder returns will play in the stock's performance. Aligning with these focal points, InvestingPro data reveals a nuanced picture of Alibaba's financial health. With a current market cap of $174.52 billion and a P/E ratio that stands at 14.21, Alibaba appears to be valued reasonably in the market. More compelling is the adjusted P/E ratio for the last twelve months as of Q3 2024, which is at 11.87, suggesting a potentially undervalued stock given its earnings.
Furthermore, a PEG ratio of 0.06 during the same period indicates that Alibaba's stock price is potentially undervalued relative to its earnings growth. The revenue growth of 7.28% for the last twelve months as of Q3 2024, coupled with a solid gross profit margin of 37.91%, underscores the company's ability to generate income efficiently. This financial stability is further evidenced by an operating income margin of 13.74% and an EBITDA growth of 15.56%, reflecting strong operational performance.
InvestingPro Tips suggest that investors should monitor the EBITDA growth and operating income margin closely, as these metrics can provide insight into the company's operational efficiency and profitability. With the next earnings date set for May 24, 2024, these indicators will be crucial in assessing Alibaba's financial trajectory and the accuracy of Morgan Stanley's scenarios. For those seeking a deeper analysis, InvestingPro offers additional tips; there are over 20 more InvestingPro Tips available, providing a comprehensive view of Alibaba's financial standing. To access these insights and more, take advantage of an exclusive offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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