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Alibaba's Perpetual Low Growth and Increased Competition May Affect its Long-Term Performance
Bernstein Downgrades Alibaba Stock and Lowers Price Target
Bernstein has downgraded Alibaba's stock to market perform from outperform, citing perpetual low growth as a possible longer-term headwind. The firm also slashed its price target to $98 per share from $130. However, Bernstein's new forecast implies roughly 15% upside from Monday's close of $85.47.
Alibaba Struggles with Low User Engagement and Increased Search Costs
According to analyst Robin Zhu, Alibaba's low growth may no longer be an aggressive bear case. Low user engagement and higher search costs are some of the challenges that the e-commerce giant faces. Merchant crowding has also hit merchant return on investment. Zhu suggested that Alibaba's decision to spend on user engagement raises questions about monetization and core free cash flow generation.
Alibaba's Modest EPS Accretion and Increased Competition
Although Alibaba's shares remain modestly valued, increased competition may be too strong of a force to combat with measures like stock buybacks and juicing earnings per share. Additionally, low multiples and modest EPS accretion may not drive durable share price performance if the competitive problem in core e-commerce remains unsolved. Alibaba's U.S.-listed shares have fallen around 3% since January.
Alibaba's perpetual low growth and increased competition may be longer-term headwinds than previously thought. Despite the company's relatively cheap stock valuations and buybacks, it may struggle to combat rising competition in core e-commerce. The struggle with low user engagement and increased search costs, as well as merchant crowding, may affect the company's return on investment. While Bernstein's new forecast implies upside potential, the future of the Chinese e-commerce giant remains uncertain.
The challenges faced by Alibaba in terms of low growth, low user engagement, increased search costs, and rising competition in core e-commerce are an indication of the challenges that new businesses can expect when entering the e-commerce industry. New entrants need to come up with solutions that are sustainable and innovative, in order to attract, engage, and retain customers, despite stiff competition.
New businesses can learn from Alibaba's experience and work to offer solutions that are innovative and customer-focused. They can establish a robust marketing strategy to engage with customers and build brand loyalty. It is essential for businesses to offer a unique value proposition that sets them apart from their competitors.
Additionally, new businesses need to understand their customer's needs and preferences and tailor their offerings to meet them. Adopting new technologies such as Artificial Intelligence (AI) and the Internet of Things (IoT) can help in offering personalized solutions to customers and streamline the shopping experience.
Therefore, new businesses entering the e-commerce industry need to be innovative, solution-focused, and customer-centric. Understanding the market trends, customer preferences, and adopting new technologies can help ensure long-term success and sustainability amidst rising competition.