On Friday, Alibaba Group Holding Ltd. (NYSE:BABA) announced its plans to buy out Youku Tudou Inc (ADR) (NYSE:YOKU); a Chinese video streamer similar to YouTube that claims to serve 580 million users every month. Alibaba has already acquired an 18.3 percent stake in the company for $1.22 billion. If the acquisition is successful, Alibaba plans to take the company private. Following the announcement, RBC Capital weighed in.
Following Alibaba’s announcement, Mark Mahaney from RBC Capital maintained an Outperform rating on Alibaba’s stock with a price target of $80.
Mahaney views Alibaba’s move as a part of its efforts to expand its exposure in the overall Chinese internet landscape. He explains, “Financially, we don’t believe the transaction will be that material to BABA. Alibaba’s CFO stated on the deal call that the acquisition would not be impactful to BABA’s FY16 estimates. She added that while Youku is not profitable, its integration should not have a material impact on Alibaba’s EPS or margin structure.”
Referring to the overall impact of the move, Mahaney said, “Strategically, we view this as part of a broader effort by Alibaba to diversify its revenue streams and broaden its exposure to secular Internet trends in China. We believe synergies are likely to be very limited between Alibaba and Youku, but we do view Youku as one of the stronger digital media assets in China. Our overall take on the deal is neutral.”
Mark Mahaney is a top-rated analyst. He has a 63% overall success rate recommending stocks with a +21.5% average return per rating when measured over a one-year horizon and no benchmark.
Out of 21 analysts on TipRanks who have rated Alibaba’s stock in the last 3 months, most agree with Mahaney’s bullish stance. Of the 21 analysts, 19 have rated Alibaba a Buy and 2 have rated it as Hold; none of the analysts have recommended to Sell the stock. The average price target for the stock is $91.55, an upside of 27.17% from current levels.