Analysts weigh in with their thoughts on internet giant Alibaba Group Holding Ltd (NYSE:BABA) and fitness wearables maker Fitbit Inc (NYSE:FIT) following management meetings with both. While one analyst believes Alibaba’s growth initiatives represent a long term catalyst for the stock, the other is lukewarm on Fitbit, citing near-term challenges as the company phases out its older products.
Alibaba Group Holding Ltd
Analyst Colin Sebastian of Robert W. Baird weighed in on Alibaba after attending the company’s Investor Day. The company provided financial guidance which predicts that sales will increase 48% by March 2017 as it moves into new markets. The analyst provides a hopeful outlook on the company, citing “upbeat comments” at Investor Day and its $1 billion investment in e-commerce start up, Lazada, announced in April.
Other recent efforts to enter new markets include the acquisition of the Chinese “YouTube,” Youku Tudou, as an example. As a result of the acquisitions, the analyst increased his FY2017 revenue and EPS estimates for the company. Furthermore, the analyst believes Alibaba is taking a step in the right direction by entering the cloud market, and increases his F2018 revenue and EPS estimates.
Sebastian points to “core growth initiatives in Digital marketing, local services, rural chain, globalization, and big data/cloud services” as the main takeaways of Investor Day. According to Sebastian, Investor Day updates on secular trends, company growth strategies, and capital allocation plans represent a “positive step towards improving investor sentiment.” Overall, the analyst believes Alibaba’s efforts to enter new markets will benefit the company in the long term. He explains, “We believe that the data and technology-first orientation is appropriate for a company that has a complex network of businesses and a broad range of long-term goals.”
The analyst maintains an Outperform rating on the company with a $94 price target. He explains, “Despite ongoing mixed sentiment on shares, largely due to China macro issues, we remain constructive on Alibaba given an increasingly diverse business with multiple long-term growth opportunities in retail, cloud, media, and logistics.”
Colin Sebastian is ranked #33 out of 3,971 analysts on TipRanks. He has a 67% success rate recommending stocks with an average return of 14.8% per recommendation.
According to TipRanks, out of the 17 analysts who have rated BABA in the past 3 months, all gave a Buy rating. The average 12-month price target for the stock is $99.46, marking a 29% upside from current levels.
Piper Jaffray analyst Erinn Murphy provided her insights on wearable fitness device company Fitbit following meeting with CFO Bill Zerella. The analyst notes that Fitbit holds over 80% of the market share in the fitness tracker category, and would like to expand through smartphones. The analyst highlighted Fitbit’s U.S. expansion plan, focusing on “increased linear footage vs. additional doors.” She explains further that the existing top 4 retailers are increasing their square footage by 50% to make room for new accessories going into the holiday season. Fitbit will utilize this strategy rather than sell its devices from new stores.
The analyst also comments on the first upgrade cycle for Blaze and Alta, which comprise 47% of the company’s sales. Murphy predicts a shift away from older products as customers embrace the new. Furthermore, she adds, “New products are providing consumer repurchase metrics along with other data points, and allows the ability to strategically market,” as 40% of Blaze and Alta sales come from existing customers.
Murphy and Zerella also discussed guidance. Management maintains Q3 guidance, marked by lower sales, “as the channel destocks to make room for new launches in Q4.” However, Q4 sales are expected to surpass Q3. Similarly, gross margin is expected to increase as old products are phased out and “new devices begin to represent a larger portion of the mix.” In addition to expected increase sales, the analyst attributes higher ASP and improved quality to better gross margin guidance, noting an expected decrease in warranty expenses. However, the analyst warns that SG&A expenses will increase “significantly” in both Q2 and Q3 as the company upgrades its purchase displays in over 50,000 international locations.
Finally, the analyst highlights Zerella’s desire to position Fitbit as a digital health product. The company is exploring ways to increase its presence in corporate wellness (10% of revenues) and is hiring people with a background in healthcare to advise the company on how to proceed in this category.
The analyst reiterates a Neutral rating on Fitbit shares with a $16 price target.
Erinn Murphy has a 40% success rate recommending stocks with an average loss of (6.4%) per recommendation.
According to TipRanks, out of all the analysts who have rated Fitbit in the last 3 months, 65% gave a Buy rating while 35% remain neutral. The average 12-month price target for the stock is $22.71, marking an 82% upside from current levels.