Alibaba Group Holding Ltd (BABA) Attracts a Price Target Bump Following Strong F2Q Beat

Baird: BABA investments that drag on commerce margins are warranted for long-term growth prospects.


Alibaba Group Holding Ltd (NYSE:BABA) stepped with its best foot forward on Thursday, or so cheers top analyst Colin Sebastian at Baird who is out with a bullish research note on the Chinese e-commerce king who was “hitting on all cylinders” in its second fiscal quarter print for 2018. Even if adjusted-EBITDA fell a tad under Street forecasts, Sebastian praises this is all with good reason, as the very investments that caused core commerce margins to lag behind short-term projections will translate to growth opportunities down the line.

Therefore, with the one slight miss “justified” as these investments spiral forward and core commerce accelerating and bringing forward powerful revenue growth, the analyst reiterates an Outperform rating on BABA stock while boosting the price target from $190 to $210, which implies a 14% increase from current levels.

For the second fiscal quarter, BABA experienced a 63% surge year-over-year “outperformance” in core commerce, compared to 58% in the first fiscal quarter, “healthy” mobile engagement trends with a 22% year-over-year burst to 549 million in mobile monthly active users (MAUs), a 99% year-over-year lift in Cloud, and a 33% year-over-year climb in Digital Media/Entertainment gains outclassing the Street’s forecast of 27%. Revenues of ¥55.1B, which experienced a 61% year-over-year increase shot past consensus expectations looking for ¥52B. From the eyes of one of Wall Street’s best performing analysts, “core commerce strength and ongoing diversification efforts [helped] drive [this] F2Q beat,” as “Alibaba demonstrated further platform strength with F2Q results well above expectations.”

“We continue to view ongoing investments in Cloud, International Retail, Cainiao logistics, and Digital Media/Entertainment as key drivers of long-term growth and market share gains as Alibaba is a driving force for the expansion of e-commerce in China,” continues Sebastian, who explains, “Adjusted-EBITDA of ¥25B (45% margin vs. 50% in F1Q18) was slightly below consensus expectations (46% margin), as investments in New Retail, globalization, digital media and logistics are a drag on core commerce margins.”

In a nutshell, Alibaba will march forward in strong standing, as Sebastian surmises even with these investments: “Nonetheless, BABA generated strong free cash flow (¥22.15B, 44% of revenues) which we believe will be utilized to drive ongoing core commerce growth at or above management’s stated guidance range, while also supporting growth initiatives in cloud, media/ digital entertainment, and offline retail.”

Colin Sebastian has a very good TipRanks score with a 76% success rate and a high ranking of #19 out of 4,703 analysts. Sebastian garners 23.9% in his yearly returns. When recommending BABA, Sebastian realizes 45.6% in average profits on the stock.

The tech stock has magnetized a stampede of bulls roaring in its favor on Wall Street, especially when sizing up that TipRanks analytics exhibit BABA as a Strong Buy. Out of 19 analysts polled by TipRanks in the last 3 months, all 19 are bullish on Alibaba stock. With a return potential of nearly 16%, the stock’s consensus target price stands at $211.65.