“The real problem is that the empire got way too large and way too audacious, not for regulators but for their own capacity to pull together synergies and make the whole thing work,” Leverenz tells Barron’s. The company faces fierce competition from more agile companies like (PDD) in its core e-commerce business. As many of Alibaba’s original partners have their wealth and time tied up in Ant and other outside ventures, and founder Jack Ma is no longer actively involved, Leverenz worries the company “has lost its mojo.”
For Leverenz to turn more positive on Alibaba, he says the company would need to become bolder and focus on core e-commerce and de-emphasize what he describes as “unwinnable battles” in areas like online video, food delivery, and “new retail” efforts while also considering consolidation opportunities in Southeast Asia. Another bold move could be to put Ant—and its Alipay platform—at the center of its strategy to build a competitive distribution platform that could rival the likes of Tencent with loyalty and membership offerings to strengthen its core businesses. Wall Street is more optimistic on Alibaba, with analysts on FactSet mostly rating the stock Buy, with a mean target price of $301, representing more than 40% upside from current prices. But there are signs of wariness as Alibaba indicated a willingness to prioritize earnings for growth and losses in its new strategic initiatives. Robin Zhu, China Internet analyst at Bernstein, wrote a note to clients.
If Alibaba’s losses in its initiatives run into the “multiple tens of billions” of yuan in fiscal 2022, that would “almost certainly trigger further downward revisions to street earnings estimates,” Zhu wrote. Lack of tangible evidence of notable market share gains in areas like community group buying or food delivery remains a concern, said Zhu, who has a Market Neutral rating and a $260 price target on the stock.
That could suggest more pain to come for Alibaba—a reason bargain-hunters may want to move slowly. Alibaba shares closed up almost 1% to $211.05 in New York trading on Monday. Write to Reshma Kapadia at email@example.com