Morgan Stanley expects Alibaba to report ‘another painful transitional quarter’

Morgan Stanley cut its price target for Alibaba (NYSE:) shares to $85 from $80 in a note Monday, maintaining an Equal-Weight rating on the stock. The bank said it sees the company reporting “another painful transitional quarter.”

Previewing the Chinese e-commerce giant’s 3QF24, analysts forecast total revenue of RMB260bn, up 5% YoY and 16% QoQ. They see non-GAAP EBITA coming in at RMB52.1bn, flattish YoY, and up 22% QoQ with non-GAAP EBITA margin at 20% for fiscal 3Q.

“We think the group’s focus on price competitiveness and everyday low-price strategy will have made an initial positive impact on GMV for the quarter, leading to a narrowing growth gap vs. the industry. We forecast low-single-digit GMV growth for fiscal 3Q vs. 6.4% yoy growth in industry online retail sales of goods for October-November 2023, according to NBS,” analysts said.

“However, on monetization, we expect Customer Management Revenue (CMR) to grow more slowly than GMV for the quarter, at 0-1%. 1) Increased engagement of Taobao merchants (owing to low price strategy) is likely to increase Taobao GMV in the mix vs. Tmall, constraining take rate. 2) Commission revenues continued to decline. Overall, we forecast Taobao Tmall Group revenue and adjusted EBITA to grow 1.4% yoy and 0-1% in F3Q,” they added.

Morgan Stanley believes the BABA business transformation is likely to take time, although they feel that more robust capital management could be an upside catalyst.