Alibaba shares target cut at Morgan Stanley

Investing.com -- Morgan Stanley lowered its price target for Alibaba (NYSE: BABA) Group from $115 to $105 in a note Monday, citing concerns over market share losses despite stable take-rates and in-line earnings for the company's fiscal second quarter.

The investment bank maintained its Equal Weight rating on the stock, reflecting a cautious outlook on the Chinese e-commerce giant's near-term prospects.

"Customer management revenue (CMR) of Rmb70.4bn (+2.5% YoY) was in line with our estimate," Morgan Stanley (NYSE: MS) noted. “However, implied gross merchandise value (GMV) growth of 2.5% YoY was slower than 6% for the industry (according to NBS), suggesting the market share loss widened during the quarter.”

Morgan Stanley said this widening gap in market share was flagged as a key concern, with Alibaba's Taobao and Tmall Group (TTG) EBITA declining by 5% year-over-year, consistent with expectations.

The bank highlighted that reinvestments in TTG offset reductions in non-core losses, resulting in flat consolidated EBITA. They added that free cash flow fell sharply by 70% year-over-year to RMB 13.7 billion, driven by a significant increase in capital expenditures on cloud and AI infrastructure, refunds of annual service fees to Tmall merchants, and adjustments in working capital due to a scale-down in direct sales businesses.

Looking ahead to the fiscal third quarter, Morgan Stanley expects GMV and CMR to grow by 5% year-over-year, signaling continued market share challenges.

" Although BABA indicated"robust growth" in GMV during Double-11, we expect continued market share loss due in part to under-indexing in categories benefiting from trade-in programs," the analysts explained.

Cloud revenue is projected to grow 12%, while international business revenue could see a 28% increase.

The price target cut also reflects long-term concerns. "We reduce our F26-27 adjusted EBITA estimates by 2-3% and non-GAAP NP by 4-5% to reflect long-term cash incentives replacing a portion of ESOP incentives, plus lower profitability of Cainiao," Morgan Stanley added.

While share repurchases totaling $4 billion in the second quarter offered some shareholder return, the bank remains cautious about Alibaba's broader growth trajectory.

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