Is this the low for Alibaba (NYSE:BABA)?

It’s been a while since there was any good news for investors of Alibaba (NYSE: BABA) to get excited about. Antitrust concerns last year were compounded by a large risk of delisting on US exchanges, which was in turn dwarfed by the impact of rising interest rates and the strong risk-off sentiment that’s been in place so far in 2022. Together, these sent shares of the Chinese e-commerce giant down as much as 75% from their 2020 high. But it’s starting to look like a low has been put in, and considering just how hard Alibaba has been able to rally under the right conditions in the past, investors might want to sit up and take notice.

Alibaba’s shares jumped 15% in yesterday’s session, a move that was undoubtedly helped by the strong performance seen across all equities but mostly driven by the company’s latest earnings. They were released before the start of Thursday’s session and came in quite strong. Both EPS and revenue beat analyst expectations, with the latter showing year-on-year growth of 9%. Their annual active consumers across the world reached approximately 1.3 billion which is an astounding figure and gives a hint at the scale of potential that’s on offer with Alibaba.

Bullish comments

Unsurprisingly, management struck a bullish tone, saying with the release that “we believe our company will continue to generate strong operating cash flow to maintain strategic flexibility as we calibrate our operations against changing economic and competitive circumstances. In the fiscal year 2023, our operating principles include focusing on sustainable, high-quality revenue growth and optimizing our cost structure to enhance overall return.”

However, given the near-term headwinds that still exist, they again stopped short of offering any guidance update, which will remain a red flag for many investors. To that point, they said that "since mid-March 2022, our domestic businesses have been significantly affected by the COVID-19 resurgence in China, particularly in Shanghai. Considering the risks and uncertainties arising from COVID-19, which we are not able to control and are difficult for us to predict, we believe it is prudent at this time not to give financial guidance as we typically do at the start of the fiscal year.”

Still, investors and Wall Street alike were more than happy to buy into the potential recovery rally that we now have on our hands. Alibaba's upbeat report was seen as a sign that the company's business has weathered the worst of the widespread lockdowns this year that have become so common in Shanghai and other cities in China. The thinking here is, if they can manage this kind of performance during that kind of environment, what’s going to be possible once COVID becomes the backpage story that it is already in most of the West already?

In addition, concerns around the ruling Communist party’s antitrust stance appear to be abating. It’s only two weeks since Chinese Vice-Premier Liu He told executives at top tier tech firms that the relationship between the government and the firms would be "properly managed". It was also reported that Liu said China would continue to fight "the battle for key core technologies," another sign that China is easing regulatory pressures on its tech companies. So with two of the biggest risks, COVID disruptions and antitrust measures, starting to take a back seat, the only big one still acting as a major break on shares is the SEC here in the US.

Considering a position

Earlier this week, an official with the Securities and Exchange Commission said "significant issues remain" in resolving the lack of transparency on being able to audit Chinese firms. YJ Fischer, Director, Office of International Affairs, said that the Public Company Accounting Oversight Board, or PCAOB needs access to audit paperwork from Chinese firms and the claim that the audit paperwork cannot be produced because of national security concerns is "questionable at best." In addition, Fischer noted that although there have been "ongoing and productive discussions" between U.S. and Chinese authorities concerning the audit investigations, time is "quickly running out."

If Alibaba and the other Chinese tech giants can navigate this hurdle, you have to be thinking that most of the pressure that's sent them down this far is off. And if that happens, their shares are suddenly going to start looking very cheap at less than $100.