Wall Street loves Alibaba right now. Here's what to expect from the tech giant's earnings

Published Tue, Feb 21 20238:05 PM EST

Since the turn of the year, more and more Wall Street banks have turned bullish on the Chinese tech sector, with Alibaba emerging as a favorite stock. It is rated "buy" by almost all analysts — 93% — covering it, according to FactSet. They give it average potential upside of 43%. The Chinese tech giant, which spans e-commerce, technology and internet segments, is due to report its earnings for the December quarter on Thursday. An analysis of Wall Street research reveals longer-term bullishness on the stock, though analysts warn of potential short-term pressure. Morgan Stanley Morgan Stanley estimates Alibaba's revenue to come in 1% below consensus. However, it expects the company to achieve a 5.2% year-on-year increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 47.1 billion Chinese yuan ($6.87 billion), in line with estimates. The bank has named Alibaba its "top pick" in the Chinese tech sector for the first time in three years. "Alibaba – top pick in China's Internet industry in 2023. We see multiple catalysts (reopening, cost optimization, easing regulatory environment, cloud reacceleration, and valuation) driving the most attractive risk-reward in the industry," the bank said. Alibaba will also benefit from a recovery in consumption in China as it opens up, along with improved efficiency across segments, according to Morgan Stanley. It believes the stock is trading at an "attractive valuation," given its ability to generate strong cash flow and its stable share repurchase program. Morgan Stanley has a base-case price target of $150 on Alibaba, and a bull-case price target of $200. Shares in the company closed at around $100 in U.S. trading on Feb. 17, giving the stock 50% potential upside from the base-case price target. Goldman Sachs Goldman Sachs is also bullish on Alibaba. Analyst Ronald Keung added the stock to the bank's conviction buy list last month, saying Alibaba is the best way to play a rebound in the China internet sector. Alibaba is one of three Chinese e-commerce names that Goldman expects to deliver profit beats this earnings season. "We believe the 2-year long earnings downward revision cycle has likely bottomed," Goldman said, giving Alibaba a price target of $138. Mizuho Mizuho Securities analyst James Lee believes Alibaba is a "defensive play" for China's uncertain macroeconomic outlook, though he is expecting the quarter to be soft for the country's internet sector. Lee said he expects gross merchandise value — which measures Alibaba's total e-commerce sales — to decline 3.5% from a year ago, better than the consensus estimate of a 13% decline. He does, however, expect gross merchandise value to reach an "inflection point" and achieve growth in 2023. "We believe that only core commerce and cloud are priced into the stock, and that new investments like food delivery, online video, and payments are free call options," the bank said, giving the stock a price target of $155. Foord Asset Management Ishreth Hassen, head of research and portfolio manager of the Foord Global Equity and Foord Asia X Japan funds, believes investors will be focused on revenue growth at Alibaba, which fell 4% and 6% year-on-year in U.S. dollar terms over the prior two quarters. Accelerating revenue growth with rising margins from currently depressed levels should be perceived very positively by the market given how cheap the stock is, Hassen added. "[While] we don't forecast earnings on a quarterly basis, all eyes this quarter will be on Alibaba's revenue growth trajectory and forward guidance versus prior quarters. Given that China only lifted its covid zero policies in December, there would not have been any meaningful earnings impact from the policy shift on 4Q," Hassen said. "However, management should have sufficient visibility into how things are evolving into 1Q23 given that we are more than halfway through the current quarter." — CNBC's Michael Bloom contributed to reporting