How Risky Is Alibaba Group Holding Ltd Stock Now? Oppenheimer Weighs In

Oppenheimer's Jason Helfstein asserts that Alibaba's investments in Cainiao Logistics, Globalization, and New Retail are valuable.


Is Alibaba Group Holding Ltd (NYSE:BABA) stock a wise pick following its strong fourth quarter print last Thursday? One bull sings the praises of sustained robust topline gains- even as he acknowledges new initiatives (from Cainiao Logistics to Globalization to New Retail) have dragged margins.

Oppenheimer analyst Jason Helfstein defends these investments as being worthwhile, finding this China king of e-commerce worth the buy.

As such, the analyst reiterates an Outperform rating on BABA stock with a $220 price target, which implies a close to 19% upside from current levels. (To watch Helfstein’s track record, click here)

For the third fiscal quarter, BABA beat out Helfstein’s expectations as well as the Street by 5%. Considering logistics company Cainiao Logistics posted a separate line, China Commerce shot 4% ahead of consensus and 5% ahead of the analyst’s forecast. Cloud outclassed the analyst’s projection by 5% and the Street even more- by 11%. International commerce was another bright spot on the print for BABA, delivering an 11% beat against Helfstein’s estimate and 18% over the Street. Other review, which includes Digital Media & Entertainment, Innovation Initiatives, and Other Commerce skyrocketed 37% ahead of the analyst’s estimate. However, the same segment underwhelmed the Street by 4%.

With the beat comes a guidance raise for the BABA team, who sent revenue on an upturn from between 49% and 53% year-over-year to between 55% and 56%. This now marks the second guidance boost for the consumer giant, who initially started out with full-year expectations for 2018 between 45% and 49%. Helfstein highlights, “This is supported by the solid performance of almost all business lines, particularly New Retail and AliCloud. Cloud rev growth continues to accelerate, from +96% y/y in F1Q to +99% in F2Q to 104% y/y in F3Q.”

Commenting on Alibaba’s move to grab a 33% equity stake in Ant Financial, the analyst notes: “We expect to see revenue sharing from Ant Financial (was listed in the Other Income line) to cease, and believe this action paves way for the upcoming Ant Financial IPO.”

On the whole, “BABA reported another strong quarter, as 3Q revenue beat Opco and the Street. While margins were weaker on Alibaba’s aggressive expansion in New Retail, globalization, streaming video content and logistics, the value of these investment is already showing growth: triple-digit y/y growth for Ali Cloud revenue & Youku subscribers; Hema revenue +300% y/y. Company agreed to a 33% equity stake in Ant Financial, at the expense of prior 37.5% revenue sharing agreement. We believe this indicates an upcoming Ant Financial IPO,” Helfstein concludes.

In reaction, the analyst is lifting his fiscal 2019 international commerce revenue expectations by 12% and cloud revenue by 4%, attributing his confidence to standout overseas business. Additionally, Helfstein cheers gains in two segments: AliCloud user base as well as VAS adoption. The analyst is also dialing up other revenue by 6% to mirror Youku’s subscriber momentum stemming from a catalyst of original content. However, the analyst is also slimming his fiscal 2019 gross margin by 4% and EBITDA by 7%.

TipRanks underscores an all-majority bullish consensus taking the bet on this Chinese e-commerce king. All 19 analysts polled in the last 3 months rate a Buy on Alibaba stock. With a return potential of nearly 24%, the stock’s consensus target price stands at $229.71.