Morgan Stanley removes Alibaba from its top picks list

Shares of e-commerce giant Alibaba (BABA) fell 10% after the company announced in its earnings report last week that it was abandoning the initial public offering (IPO) of its cloud segment. This decline wiped 20 billion dollars off the company's market value.

While investors have reacted largely negatively to this development, Wall Street analysts remain divided on the future of the stock.

Morgan Stanley removed Alibaba from its top picks list, while Barclays described the shelving of the company's IPO plans as the “right decision.”

Let's take a closer look at what the analysts have said and whether they consider Alibaba a buying opportunity at the bottom.

MORGAN STANLEY

Morgan Stanley, which previously called Alibaba its top pick in the internet sector, changed its mind after last week. The bank cited a number of reasons for the decision, including a “negative surprise in the cloud IPO.”

The bank stated that this shock move disrupted its investment thesis and said it is now shifting its focus to Tencent (TCEHY) as its new favorite.

Morgan Stanley analysts led by Gary Yu stated, “Uncertainty regarding the recovery of consumption and the re-acceleration of the cloud, along with the step back on the cloud segment spin-off, leads us to remove BABA as our top pick.”

Morgan Stanley maintained its “OVERWEIGHT” rating on the stock but lowered its price target from 125 dollars to 100 dollars. The new price target points to an upside of approximately 42% for Alibaba's US-listed shares.

BERNSTEIN

Bernstein analysts characterized Alibaba's earnings as lackluster, saying that the abandonment of the cloud IPO further worsened the credibility issue among investors.

Furthermore, the analysts, who said that another quarter of weak growth in Alibaba's core platforms clearly shows the problems the company is facing, added that canceling the cloud IPO immediately after announcing plans to better reward shareholders weakened confidence in management's initiatives:

“The cancellation of the cloud spin-off came out of the blue and marked the end of the last major ‘initiative’ expected to improve shareholder returns.”

The investment bank also lowered its price target for BABA from 100 dollars to 93 dollars.

BARCLAYS

Unlike other investment banks, Barclays said that the move to shelve the spin-off plans could ultimately be the “right decision” given all the regulatory uncertainties.

However, the Wall Street bank acknowledged that the cancellation of the IPO could be “disappointing” for investors as it removes a near-term catalyst for unlocking value.

The bank's analysts led by Jiong Shao stated, “BABA’s cancellation of the widely anticipated cloud IPO disappoints investors by removing a near-term catalyst for unlocking value. While it is an unpleasant decision for BABA’s new top leadership, who are committed to returning shareholder value through buybacks and now annual dividends, we think it may be the right decision.”

Barclays reiterated its “OVERWEIGHT” rating and 138 dollar price target on the stock, saying that the focus on dividends and buybacks could still make Alibaba shares attractive for long-term investors.

JPMORGAN

JPMorgan analysts stated that Alibaba's cloud segment missing analyst estimates and the moderate decline in its core business would worry investors.

While the bank welcomed the newly announced dividend, it said this would not be enough to compensate for investors' disappointment regarding the canceled cloud IPO plans.

The Wall Street giant maintains its 150 dollar price target for the US-listed stock. This implies that BABA could rise 93% over the next 12 months.