It has been difficult to control Alibaba’s (NYSE:BABA) stock has lost more than 70% of its market value over the past two years.
Investors wondered if Alibaba had reached its peak and would continue to decline as the stock price fell. Nevertheless, I made the decision to hold onto the stock while the business resolved its problems. The most recent earnings report from Alibaba supports my earlier decision, even though it is still early.
The individual considers their investment.
The most recent performance of Alibaba wasn’t all that bad. In the first quarter of the fiscal year 2023, which ended on June 30, Alibaba reported one of its worst performances ever.Net income decreased 53% while revenue remained the same.
The tech conglomerate faced challenges such as COVID-19 lockdowns in China and the weakening external environment, so investors anticipated that the second quarter would be equally challenging.However, I was somewhat surprised by Alibaba’s resilient performance when it announced its outcome.
To begin, revenue increased by 3% year-over-year.Other segments,
such as local consumer services and Cainiao (logistics), experienced robust growth of 21% and 36%, respectively, while its e-commerce business experienced a slight decline of 1%.In addition, revenue from non-internet-related industries like financial services, telecommunications, and public services increased 28% year over year, while the cloud computing segment experienced a meager 4% growth.
Due to its varied income base, Alibaba’s most recent performance demonstrated the resilience of its business model.The remaining segments took over when one segment failed to perform to keep the growth machine running.
Granted, Alibaba’s group-wide revenue growth of 3% significantly underperformed its previous rate of high-double-digit growth. However, Apple and Tesla shares surge after stock splits.Longer term, be that as it may, I figure the organization can continue a higher development direction (more in the segments underneath).
It is common knowledge that Alibaba is experiencing difficulties as a result of factors such as intensifying competition (from Pinduoduo and Douying) and low consumer sentiment as a result of the ongoing COVID-19 lockdowns in China.
The technology company is, thankfully, not idle.Taobao Deals, for instance, was launched to compete with Pinduoduo in the lower-end market.In addition, it continuously strives to enhance the shopping experience of customers on Tmall and Taobao, which may account for the 98% retention rate among customers who spend more than 10,000 yuan per year in the most recent quarter.
Additionally,
the management team turned internally to improve its efficiency and cost structure as the external environment became more challenging for growth.Consequently, operating income increased 68% to 25 billion yuan ($3.5 billion) in the most recent quarter.Recall that revenue only increased by 3%.
Alibaba isn’t entirely free of problems, in my opinion.Nevertheless, I find it reassuring that the management team is putting the business in a better position for the future.
The management team will need some time to right the ship because Alibaba is buying back shares.The business is buying back a lot of stock in the interim. Under its $25 billion repurchase program, the company has repurchased $18 billion worth of stock as of November 16.The board extended the program until fiscal year 2025 and increased it by $15 billion.
To put it another way, Alibaba has the ability to repurchase stock worth up to $22 billion over the next few years.As of this writing, the company’s market capitalization is $213 billion, which helps put this number into perspective.Alibaba will have repurchased approximately 10% of its stock if the stock price remains unchanged over the next few months and the $22 billion is utilized.
Even though $22 billion may appear to be a lot, Alibaba has sufficient cash on its balance sheet to pay for the share buyback.It will have 68 billion yuan in short-term investments, cash and cash equivalents, and other treasury investments as of September 2022.
Is it time to purchase the shares?
The company’s weaker performance over the past few quarters was evidence of Alibaba’s recent difficulties.
Still, this quarter’s revenue growth and improved profitability are early signs that the worst may soon be over.In my capacity as a shareholder, I believe that this uptrend will continue in the upcoming quarters.As a result, I’m keeping the stock.
However, given that I anticipate additional volatility in the months to come, I will not encourage new investors to join at this time.Before making their next move, they should keep an eye on Alibaba’s performance for a few more quarters.
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