Top Analyst Hikes Price Targets on Alibaba Group Holding Ltd and Amazon.com, Inc., Downgrades Alphabet Inc on Valuation

As the peak of earnings season continues, top analyst Scott Devitt weighs in on BABA, AMZN and GOOGL.


Today, Stifel Nicolaus’ top analyst Scott Devitt took an in-depth look at three internet stock giants, following fresh sets of earnings numbers. The verdict: Devitt lifted his price targets on e-commerce leaders Alibaba Group Holding Ltd (NYSE:BABA) and Amazon.com, Inc. (NASDAQ:AMZN), while stepping to the sidelines on search giant Alphabet Inc (NASDAQ:GOOGL). Let’s take a closer look.

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Scott Devitt has a yearly average return of 43.1% and a 76% success rate. Devitt is ranked #37 out of 4756 analysts.

Alibaba Group Holding Ltd

Alibaba reported another strong quarter, with results well above consensus expectations, including impressive revenue growth outperformance, driven by ongoing strength in core commerce, healthy addition of new China consumers, and continued diversification. In addition, the Chinese e-commerce giant raised FY18 revenue guidance to 55-56% vs. 49-53% previously.

In reaction, Devitt boosts his price target on BABA stock to $260 (from $230), while maintaining a Buy rating on the stock.

Devitt  commented, “Alibaba is building a defensible, global commerce ecosystem by investing in the user experience, personalization / consumer data analytics, and omnichannel retail initiatives. We believe the company’s omnichannel ambitions could have significant upside potential over time if Alibaba can successfully help improve productivity and reinvigorate growth at traditional retail partners, which in China, represents ~80%-85% of total retail spending. The company is leveraging its data technology to empower its brick-and-mortar retail partners to transform through digitization, which allows store operators to react to consumer demands in real-time, improve inventory management, and address the evolving demands of customers. The Ant Financial deal is a positive, in our view, as it brings many key strategic benefits to Alibaba and allows for closer collaboration in key areas such as Alipay, which will be an essential ingredient in Alibaba’s New Retail ecosystem and globalization strategy. In addition, there are over 100mm Alipay users that don’t currently shop on Taobao, providing Alibaba with an opportunity to attract new users.”

When it comes to Wall Street’s bet, the odds are on this e-commerce player, with TipRanks analytics showcasing AMZN as a Strong Buy. Out of 17 analysts polled in the last 3 months, all 17 are bullish on Alibaba stock. With a return potential of nearly 20%, the stock’s consensus target price stands at $230.13.

Amazon.com, Inc.

Amazon reported better than expected fourth-quarter revenue and operating margins, driven by strong operational execution and advertising. 1Q18 revenue guidance came above consensus on lower than expected margins.

Devitt opined, “The strong ad revenue growth coupled with management’s commentary regarding the company’s advertising strategy suggests potential upside in the near to intermediate-term. Amazon is currently a distant third behind advertising giants, Google and Facebook, but over time we believe Amazon has the resources, traffic, and consumer data to start gaining more share. We estimate Amazon will generate over $4.5B in advertising revenue in 2018, assuming it makes up ~65% of the company’s “Other” revenue. Devices is another area we believe could provide significant upside over the coming years, and management pointed to this category as a key area of focus going forward. In 2017, we estimate Amazon’s smart speaker installed base grew to 36mm (up from 10mm a year ago), In 2020, we forecast Amazon will generate $4.6B in Echo device sales, though believe the most upside in the medium-term could come from other Alexa-related areas such voice shopping, and in the long-term, potentially voice advertising and home automation.”

Devitt is not the only fan of the retail giant on Wall Street, as TipRanks analytics exhibit AMZN as a Strong Buy. Based on 33 analysts polled in the last 3 months, 31 rate a Buy on Amazon stock while 2 remain sidelined with a Hold rating. The 12-month average price target stands at $1,608.39, marking a 10% upside from where the stock is currently trading.

Alphabet Inc

Alphabet shares are tanking nearly 5% in Friday’s trading session, after the internet giant reported mixed fourth-quarter results, with revenue upside offset by higher Cost of Sales and Marketing spend.

However, Devitt had a different reason for downgrading the stock: “We are lowering our rating on shares of Alphabet to Hold from Buy, as the price has exceeded our $1,150 PT.”

“We are raising our 1Q / 2018 net revenue forecasts to $23.97B / $104.8B (from $23.8B / $103.6B previously), while our GAAP EPS for those periods falls to $8.24 / $39.51 (from $9.41 / $42.13) as Alphabet invests behind cloud, hardware, and mobile,” the analyst added.

Where does the rest of the Street side on this internet giant? It appears mostly bullish, as TipRanks analytics demonstrate GOOGL as a Strong Buy. Out of 22 analysts polled in the past 3 months, 19 are bullish on Alphabet stock while 2 remain sidelined. With a return potential of nearly 15%, the stock’s consensus target price stands at $1,290.45.