Apple Inc. Gears up to Take on Spotify, Alibaba Group Holding Ltd Stock Strolling Towards Breaking $200, and Why It Is Not Amazon.com, Inc.’s Fault for the Fed’s Inflation Struggle

Tuesday's Glimpse into 3 Leading Tech Players


Apple Gunning for Netflix or Spotify with New $1 Billion Investment?

Apple Inc. (NASDAQ:AAPL) is angling to bolster its services segment, and according to the Wall Street Journal’s Tripp Mickle, the tech titan has “set a budget of roughly $1 billion to procure and produce original content over the next year” to show CEO Tim Cook has his eye on the leaderboard.

In fact, Mickle believes former Sony executives Jamie Erlicht and Zack Van Amburg that jumped ship to the titan back in June will be steering the initiative to acquire up to 10 television shows with the new budget.

Though television is more Netflix’s territory, RBC Capital analyst Amit Daryanani anticipates this is far more about Apple Music coming up to oust Spotify in the music streaming arena, believing, “While a billion dollars appear small relative to Netflix’s $6B, Amazon’s ~$4B and HBO’s $2B annual content spend, we think that Apple is not competing with these services, at least not yet. Instead, the investment makes more sense in our view from the perspective of Apple Music taking share from Spotify.”

This investment will be worth the payoff, argues the analyst, who foresees, “If AAPL is able to get an additional 7-8MM paid Apple Music subscribers, it would recoup the $1B investment (after paying record labels’ share of subscription) in three years.”

Glancing ahead, “Ultimately, we think the investments fit well with AAPL’s goal of doubling Services business by 2020,” concludes Daryanani, bullish on the investment chess move.

Therefore, the analyst maintains an Outperform rating on shares of AAPL with a $176 price target, which implies a just under 12% increase from where the stock is currently trading. (To watch Daryanani’s track record, click here)

TipRanks analytics demonstrate AAPL as a Strong Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 26 are bullish on Apple stock while 8 remain sidelined. With a return potential of nearly 9%, the stock’s consensus target price stands at $170.58.

Alibaba Gets a Price Target Lift After Defying the Numbers Game

Alibaba Group Holding Ltd (NYSE:BABA) released its first fiscal quarter print for 2018 last Friday, and if the Chinese e-commerce giant keeps up shaking up the Street in trouncing all expectations, Barclays analyst Ross Sandler expects shares will hit $200 soon enough.

In reaction to the giant’s impressive serve-up of robust financial results, the analyst reiterates an Overweight rating on BABA while boosting the price target from $180 to $200, which represents an 18% increase from where the shares last closed. (To watch Sandler’s track record, click here)

Sandler praises, “Alibaba keeps defying the law of big numbers in FY1Q18 (CY2Q17), with solid earnings results blowing away Street consensus. Total revenues came in 5% above consensus, mainly driven by 65% y/y growth of Customer Management (Marketing) services (52% of total revenues). Cutting-edge Personalization technology continues to improve user targeting and drive click volumes. Physical goods GMV [gross merchandise volume] growth accelerated to 49% y/y, demonstrating the platforms’ marketing capability and the effectiveness of new promotion initiatives on Tmall. Cloud services reached the milestone of 1 million paying users during the quarter, with loss further narrowed down. HeMa Supermarket’s reclassification from ‘Innovation Initiatives’ to ‘Core Commerce’ is illustrating that Alibaba’s New Retail trials have already moved beyond the incubation stage […]”

Though confident on Alibaba’s stellar trajectory, the analyst concludes noting there are still “thing” left to “monitor,” including management’s intent to invest in the back half of the year to explore more growth opportunities. As such, the analyst projects a 1.8% percentage point cut year-over-year in his fiscal 2018 EBITA margin expectations. Likewise, the analyst anticipates with contra-revenue subsidies as promotional events, it is worthy of note that what was advantageous to margin expansion for the quarter points to a non-recurring instance. Furthermore, EBITDA margin of Digital Media and entertainment was -43%, marking a 11% year-over-year dip. Lastly, Sandler keeps his attention peeled to the $4 billion YoukuTudou takeover whose focus on quality original video content could keep dragging down margins for the rest of the year.

TipRanks analytics indicate BABA as a Strong Buy. Based on 16 analysts polled by TipRanks in the last 3 months, all 16 rate a Buy on Alibaba stock. The 12-month average price target stands at $181.13, marking a 7% upside from where the stock is currently trading.

Amazon Not Liable for Inflation Weakness

Are the Feds crying wolf on Amazon.com, Inc. (NASDAQ:AMZN), falsely blaming its failed objective to attain 2% as an inflation target on this online auction and e-commerce leader? True, now that Amazon has the wheels in motion to purchase Whole Foods, food prices could stand to have quite a shake-up.

However, from the standpoint of Capital Economics analyst Paul Ashworth, just because consumers lately are flocking to the ease of buying products and services online, subsequently evolving the way of the retail world, “it does not explain the weakness in core inflation.” The elements in the air bringing about softness in core inflation the analyst pegs to the “transitory,” expecting by 2018, there will be a comeback. The Fed will be lifting interest rates once more in December, predicts Ashworth, who looks for at most four interest rate lifts in 2018.

Ultimately, when juxtaposing Amazon against fellow retail disruptor Walmart, it becomes clear to the analyst that the Fed’s ire is misplaced. “The comparison between Amazon and Walmart is useful because for many years it was Walmart that led the cost cutting revolution in retail. With its mega-sized stores selling a broader range of goods and its commitment to cut costs by putting pressure on suppliers, Walmart was successful in stealing market share away from traditional specialty stores. […] More recently, after a temporary surge in prices in 2011 and 2012 that was partly due to dollar weakness, goods prices have been falling again for the past few years. But the pace of those declines is no faster than the 2002 to 2009 period and there is little evidence that goods price deflation is accelerating. Accordingly, looking at all goods in aggregate, the shift to online sales in the past decade doesn’t appear to have added to goods price deflation, which had been ongoing since 2002,” surmises Ashworth.

TipRanks analytics showcase AMZN as a Strong Buy. Out of 32 analysts polled by TipRanks in the last 3 months, 30 are bullish on Amazon stock while 2 remain sidelined. With a return potential of nearly 24%, the stock’s consensus target price stands at $1,177.44.