Stifel Nicolaus analyst Scott Devitt is out today with a research note on shares of Alibaba Group Holding Ltd (NYSE:BABA), after the eCommerce giant announced revenue growth guidance well above expectations, driven by ongoing strength in core commerce as well as a growing contribution from cloud computing and digital media/entertainment. Alibaba shares are rising nearly 4% to $147.48, as of this writing.
Devitt wrote, “Yesterday Alibaba provided FY18 revenue growth guidance of 45%-49% y/y, well above our prior estimate of 37%. This follows ~57% y/y growth in FY17 (44%-45% growth excluding acquisitions). We are raising our FY18 revenue estimate from ¥217.5B to ¥233.1B, reflecting growth of 47.3%.”
“The increase in our revenue estimate largely reflects better core commerce growth as Alibaba drives higher engagement with more relevant content and better conversion as the company leverages its strong data technology. Management did not provide margin guidance though suggested core operating leverage will be partially offset by investment in key areas. We expect margins to be flat to slightly up in FY18 following yesterday’s top-line guidance. We are raising our FY18 EBITDA margin estimate to 47.2% from 45.3%,” the analyst added.
As such, Scott Devitt reiterates a Buy rating on Alibaba shares, while boosting the price target to $165 (from $139), which represents a potential upside of 13% from where the stock is currently trading.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Scott Devitt has a yearly average return of 20.5% and a 75% success rate. Devitt has a 35.7% average return when recommending BABA, and is ranked #63 out of 4572 analysts.
Out of the 28 analysts polled by TipRanks (in the past 12 months), 25 rate Alibaba stock a Buy, while 3 rate the stock a Hold. With a downside potential of 11%, the stock’s consensus target price stands at $130.12.