Alibaba’s Target Price Gets Cut. Blame the E-Commerce Slowdown.

Text size

Chinese e-commerce giant

Alibaba

won’t be spared from the current slowdown in online sales, said Truist analyst Youssef Squali. That’s why he cut his target price on the stock and lowered estimates a week before the company is slated to report earnings.

Squali’s new price target for Alibaba (ticker:

BABA

) is $132, down from $180. He believes the company’s fourth-quarter results and any short-term guidance are likely to point to continued challenges across the company’s segments as it deals with China’s slowing economy amid ongoing Covid-19 lockdowns.

The analyst estimated that China commerce revenue will slow to 4% year-over-year growth, the lowest in 10 years. It doesn’t help that Alibaba is heavily dependent on apparel and cosmetics to drive revenue, two areas that have been hit the hardest, Squali wrote in a research note on

W

ednesday.

“We attribute much of the recent softness to lockdowns in major cities (such as Shanghai), as a result of zero-Covid policies, which restrict mobility for both consumers and deliveries,” he wrote.

The Chinese government has started eyeing measures to boost its economy, with top officials meeting with Chinese tech sector executives this week in a sign that Beijing may be relaxing the pressure it has placed on the sector over the last year. These moves are encouraging, Squali wrote, but “it remains to be seen what actual measures the Chinese government decides to take to boost consumer spending in particular, and over what time frame.”

J.P. Morgan’s Alex Yao was more upbeat about the possibility of effective policy changes in China. He upgraded Alibaba and

Tencent Holdings

(

TCEHY

) earlier this week Overweight, up from Underweight in mid-March. The positive developments indicate to Yao that the key risks to the sector have diminished, especially the regulatory risks.

The slowdown in e-commerce isn’t unique to China. In the U.S., online retailers spanning from

Amazon.com

(

AMZN

) to

eBay

(

EBAY

),

Etsy

(

ETSY

), and

Wayfair

(W) have reported a deceleration in online sales, issuing soft outlooks for the rest of the year. Big-box retailers are also struggling amid rising inflation, with

Target

(

TGT

) and

Walmart

(

WMT

) posting earnings whiffs this week that fueled concerns about the overall health of the consumer.

Alibaba stock was down 1.6% to $09.57 on Wednesday. The shares have lost 23% this year.

Write to Sabrina Escobar at [email protected]