alibaba office

Alibaba stock is trading higher in early US price action after the company reported the earnings for the June quarter. The earnings were better than expected and came amid a tough quarter for Chinese companies.

China had imposed strict lockdowns in April and May which took a toll on its industrial activity as well as consumer spending. Unlike the rest of the world, which is learning to live with the coronavirus, China has a strict zero-COVID policy and shuts downs large parts of the country to control the outbreak. The policy has helped the country keep its death toll low even as it is now impacting economic activity.

Alibaba reported revenues of $30.7 billion in the quarter. While the metric was ahead of what analysts were expecting, it was slightly below the last year. This is the first time since Alibaba went public that it has posted a YoY fall in revenues.

But then, even Amazon’s revenues rose by only 7.2% in the second quarter of 2022 which is its slowest pace of growth in over two decades. However, Amazon provided a bullish commentary on its outlook and the stock rose over 10% after the earnings release. Alibaba’s net income of $3.4 billion was also higher than expected.

Lucid Motors, which also released its Q2 2022 earnings, is trading sharply lower today after it lowered its 2022 delivery guidance to a mere 6,000-7,000 cars. It is the second guidance cut from the Peter Rawlinson-run company.

Coming back to BABA, commenting on the earnings, Toby Xu, Alibaba’s CFO said, “Despite the challenges posed by the COVID-19 resurgence, we delivered stable revenue performance year-over-year. We have narrowed losses in key strategic businesses given ongoing improvements in operating efficiency and increasing focus on cost optimization.”

Alibaba Sees a Rebound in Business

Meanwhile, Alibaba sees a rebound in its business. In his prepared remarks, Alibaba’s CEO Daniel Zhang said, “Following a relatively slow April and May, we saw signs of recovery across our businesses in June. We are confident in our growth opportunities in the long term given our high-quality consumer base and the resilience of our diversified business model catering to different demands of our customers.”

Notably, Alibaba has been added to the list of Chinese companies that face delisting in the US. Under new US rules, Chinese companies trading in the US need to get their books audited, something not many Chinese companies might be comfortable with. While Alibaba has said that it intends to keep its listing on the NYSE, it is looking for a dual primary listing in Hong Kong. The company already has a secondary listing in Hong Kong.

Amid rising US-China tensions, which have only escalated after Nancy Pelosi’s visit to Taiwan, Alibaba-backed Ant Financial ditched the US for Shanghai and Hong Kong, in a now-stalled IPO.

Alibaba was among the worst affected major tech companies by the crackdown. Ant Financial’s valuations have taken a hit after the crackdown. The fintech company was set to become the biggest Chinese listing overtaking its parent Alibaba.

Meanwhile, Alibaba and other Chinese stocks have recovered from their 2022 lows after the country signaled an end to the tech crackdown and said that it would support the overseas listing of Chinese companies.

Earlier this year, Didi delisted from the US markets in a span of months. While US investors suffered billions of dollars in losses from the forced delisting, Uber also took a hit. Uber has suffered losses on its other equity investments also.

Bernstein Finds Alibaba Stock as a Good Buy

Last month, Bernstein advised investors to buy Alibaba stock and said that $85-$90 price levels as a floor for the stock. The brokerage also raised its target price to $130. Meanwhile, amid China’s tech crackdown and uncertain policies, valuations of Chinese stocks have taken a hit.

Even Charlie Munger trimmed his Alibaba holdings in the Daily Journal portfolio. Many other fund managers also either trimmed or exited Chinese shares. The list also includes Cathie Wood of ARK Invest whose funds are underperforming in 2022 amid the sell-off in growth shares.

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