Alibaba has ‘its mojo back’ and is catching up to Wal-Mart
‘We estimate BABA will soon be the largest retailer in the world’
MarketWatch photo illustration/Everett Collection, Getty Images
Alibaba Group just convinced some analysts that it is on track to outpace Wal-Mart Stores Inc. as the world’s largest retailer. They also think it can do better than Baidu, all while offering better stock market returns than Amazon.
While sentiment has remained low on Alibaba BABA, +0.01% since its September initial public offering—its shares are off about 27% from November highs—analysts have grown much more bullish after the company’s stronger-than-expected earnings report on Thursday.
Alibaba has got “its mojo back,” said Pacific Crest analyst Cheng Cheng in a note to clients Friday morning. The world’s largest e-commerce company was met with a wave of positive analyst notes, including an upgrade to buy from neutral at Goldman Sachs.
Goldman also raised its price target by a dollar to $98, which implies a 14% return from Thursday’s closing price. Other increases came from Stifel, which reiterated a buy rating raised its price target to $102 from $99; Raymond James, which stayed at outperform and lifted its target to $109 from $108; Cantor Fitzgerald, which maintained a buy rating and raised its target to $110 from $100; and Barlcays, which stayed at overweight and increased its target to $103 from $100.
Nomura became Alibaba’s most bullish analyst in terms of share-price growth when it reiterated a buy rating and raised its price target to $137 from $119, implying 60% upside. HSBC reiterated a $136 target and buy rating. The average rating and target among a FactSet poll of 33 analysts is the equivalent to buy and $107.51.
The top-line beat takes Alibaba “out of the penalty box,” said analysts at Wells Fargo. “We estimate BABA will soon be the largest retailer in the world,” with much better returns and margins than the current leader; Wal-MartWMT, +0.64% they said.
Stifel analyst Scott Devitt said he thinks the strong earnings will shift the dialogue back to Alibaba as a leading global e-commerce platform. The stock, he said, offers a return potential that is two-times that of U.S. rival Amazon.com Inc.AMZN, +1.60%
Nomura analyst Chao Wang said Alibaba has reached an inflection point in terms of monetization, which he said should drive “significant upside” in revenue over the next three to five years. He believes Alibaba can perform better than Baidu Inc. BIDU, -0.05% in terms of mobile monetization.
A bright spot for Alibaba during the quarter was a 157% improvement in mobile gross merchandise volume to $49 billion, representing 51% of total GMV. Overall mobile revenue nearly quadrupled.
“Alibaba is positioned to leverage the next legs of growth in online shopping in China,” said HSBC analyst Chi Tsang, who said Alibaba remains his top pick in his coverage area.
Analysts at Jefferies, which reiterated a buy rating and $98 price target on the stock, said the transition to mobile commerce is happening faster than expected.
There are still areas in need of improvement, particularly with TMall’s gross merchandise volume, which analysts say may improve with a successful relaunch of the TMall app.
Bank of America Merrill Lynch maintained a buy rating and $107 price target, but said Alibaba must address challenges in PC monetization, which is being affected by the rise in mobile. However, Stifel’s Devitt said management remains confident that mobile can exceed desktop in the long run.
Shares of Alibaba were up 1.9% to $87.69 in recent Friday afternoon trade. They have increased 9.5% since closing at $80 in the last day of trade before the company reported earnings.
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