In a research report released after the market closed Tuesday, RBC Capital analyst Mark Mahaney reiterated an Outperform rating on Alibaba Group Holding Ltd (NYSE:BABA), while reducing the price target to $105 (from $110), which implies an upside of 20% from current levels. The decreased price target comes in response to recent management comments at an investor conference. The company has suspended its Online Lottery sales and lowered fees related to its groupbuying platform, Juhuasuan, which has created near-term P&L headwinds, according to the analyst.
Mahaney commented: “At an investor conference last week in Beijing, BABA management made two comments indicating incremental adjustments to the business model: 1) the company suspended its online lottery sales in late February, with the June quarter being the first quarter where the company will experience a full quarter impact. In FY15, lottery revenue represented 2% of total revenue (and GMV), and lottery revenue amounted to $500M RMB last June (F1Q15). 2) Alibaba lowered its fixed advertising fee and commission charge on Juhuasuan, the company’s group-buying website. The company made this change in early April, so it will experience nearly a full quarter impact this June. BABA made this adjustment to extend its market leadership and attract and retain more advertisers. We assume competitive pressures were also at play, they usually are when companies reduce fees.”
Bottom line: “To reflect these adjustments to estimates, we have lowered our PT. Despite these headwinds, we continue to view BABA as THE dominant Chinese ecommerce platform, with robust & consistent Buyer & GMV growth rates, very high EBITDA margins, substantial FCF generation (almost $1B in the March Quarter alone), and significant option value in terms of non-retail revenue streams in China and International expansion.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a total average return of 22.4% and a 64.2% success rate. Mahaney has a -9.4% average return when recommending BABA, and is ranked #19 out of 3614 analysts.
Out of the 32 analysts polled by TipRanks, 30 rate Alibaba stock a Buy, while only 2 rate the stock a Hold. With a return potential of 20.02%, the stock’s 12-month consensus target price stands at $105.11.