Alibaba Stock Price Forecast February 2022 – Time to Buy BABA Stock?

Alibaba (BABA) stock is trading flat for the year even as other tech stocks are in the red. However, the stock has been falling since the fourth quarter of 2020 after hitting its all-time highs.

BABA stock plunged in Hong Kong trading today and looks set to fall in US markets in today’s price action. What’s the forecast for Alibaba stock and is it a good buy in February 2022?

Alibaba stock recent developments

China has increased the scrutiny of Ant Financial, where Alibaba owns a third of the stake. The country has reportedly asked banks to review their exposure to Ant Financial, whose IPO was stalled in 2020 by the Chinese authorities. It was expected to be a big IPO and had received bids worth $3 trillion and Ant was expected to command a market cap of around $320 billion, which was higher than JPMorgan Chase, the largest US bank.

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Ant Financial

Meanwhile, amid China’s tech crackdown, Ant Financial’s valuations have plunged. BlackRock values the fintech giant at $174 billion while T. Rowe Price has put the valuation at $189 billion. Others have an even lower valuation for Ant Financial and Fidelity Investments lowered the valuation to $78 billion last year.

According to Bloomberg Intelligence, “Beijing’s call for China’s banks to check their exposures to Jack Ma’s unlisted Ant Group may jeopardize the company’s ties with financiers for its online-loan business, with our scenario analysis suggesting its valuation could plunge to $63 billion vs. the $320 billion level targeted in the 2020 IPO.”

Alibaba has been at the forefront of China’s tech crackdown

Just like GameStop and AMC Entertainment were the poster boys of the meme stock trade in the US, Alibaba was at the forefront in China’s tech crackdown. BABA’s co-founder Jack Ma had made critical comments about the country’s financial system in 2020. Post that, not only was the IPO of Ant Financial blocked by the Chinese government but Ma himself wasn’t seen in public for months.

BABA paid a record fine

Last year, Alibaba paid a record $2.8 billion fine to the Chinese government to address the antitrust case. Alibaba had announced that it would invest $15.5 billion by 2025 to promote common prosperity in China. The investment, which would be completed by 2025, comes amid the push by the Communist government to address the growing wealth inequality in the country. While BABA has been trying to buy peace with the Chinese government, it continues to be targeted by the authorities as is visible in the latest orders against Ant Financial.

Is SoftBank selling Alibaba shares?

Japanese venture capital company SoftBank has been among the worst affected by China’s crackdown. It owns significant stakes in several Chinese companies including Alibaba and Didi. Didi stock plunged after China asked it to delist from the US markets. Alibaba too has been falling. SoftBank suffered another setback after Nvidia called off the deal to acquire Arm Holdings amid the regulatory hurdles in the UK.

Earlier this month, Alibaba registered a share sale facility in the US. Many saw it as a sign that SoftBank was looking to pare its stake in the Chinese e-commerce giant. While SoftBank said that the share sale facility is not linked to its plans to sell BABA shares, the company might eventually need to sell shares to raise cash.

Jefferies analyst Atul Goyal estimates that Softbank would need to raise between $40-$45 billion this year as it ramps up share buybacks and also invests in startup companies. SoftBank sold 20 million Alibaba shares last quarter and Goyal believes more share sales are coming this year.

BABA is facing pressure in the US also

For BABA stock, it has been a perfect storm. While it has been targeted by China, US authorities have also been clamping down on the company. The USTR added Alibaba sites to its list of “notorious markets” which allegedly sell or facilitate the sale of counterfeit products. While announcing the list, the USTR said, “This includes identifying for the first time AliExpress and the WeChat e-commerce ecosystem, two significant China-based online markets that reportedly facilitate substantial trademark counterfeiting.”

Alibaba’s US listing has itself been under scrutiny. Like many other Chinese companies, BABA stock in the US trades as a VIE (variable interest entity), a practice that both Chinese and US authorities are now turning against. After Didi’s delisting, there are fears that BABA might also delist from the US markets even as there are no imminent plans to do so.

Alibaba is facing a growth slowdown

Meanwhile, China’s crackdown and delisting are not the only risks that Alibaba is facing. The company is also battling a growth slowdown amid the broader slowdown in the Chinese economy. At last year’s Single’s Day annual shopping event, Alibaba reported an 8.5% increase in sales. While sales hit a record high of $84.5 billion, it was the first time that sales growth fell to single digits.

BABA stock forecast

Meanwhile, while some of the analysts have lowered Alibaba’s target price, the consensus projections are still quite bullish for the stock. Of the 55 analysts covering BABA stock, 48 have a buy rating. Six analysts have a hold rating while one analyst has a sell rating on the stock. The stock’s median target price is $182.98 which is a premium of 53.8% over current prices.

BABA stock long term forecast

Some observers, including Cathie Wood of ARK Invest, believe that there would be a structural deterioration in the multiples of Chinese tech names. China’s tech crackdown has dented the long-term forecast for Chinese stocks like Alibaba. Also, the Chinese economy might not grow at the same pace as we saw in the previous five years. China’s tech crackdown coupled with the US-China rivalry has indeed led to structural deterioration in the valuations of Chinese companies.

That said, BABA should benefit from the secular growth in both its e-commerce and cloud operations. Ashwath Damodaran, who’s known as the “dean of valuation” said last year that he’s now ready to buy BABA stock. He said “At the prices at which it’s trading, I think not withstanding all the worries about corporate governance and the Chinese government, I think it’s well positioned to be a long-term investment. He called BABA a solid company and said that he likes the stock as a long-term investment. Charlie Munger has also been buying BABA stock despite the crash.

Should you buy BABA stock?

Alibaba stock now trades at an NTM (next-12 months) PE multiple of 13.6x. If not for the regulatory risks and China’s crackdown, BABA would have been a screaming buy at these price levels. However, the stock’s outlook has been clouded by the unending crackdown in China and the lack of visibility on Ant Financial’s IPO.

Alibaba stock might see a sustained rebound only when the air clears over the regulatory issues. However, the stock is now getting too cheap to ignore at these prices despite the multiple headwinds.

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