J.P. Morgan Slashes Price Target for Alibaba Group Holding Ltd but Remains Positive

J.P. Morgan analyst Alex Yao came out today with a research report on Alibaba Group Holding Ltd (NYSE:BABA), reducing the price target to $109 (from $117), while maintaining an Overweight rating on the stock. The decreased price target comes in response to lowered revenue and profit estimates for Alibaba by 4%-5% for 2016 and 7%-8% for 2017 on expectations that the company's search and ad quality improvements will hurt near-term financials.

Yao noted, "We view Alibaba's changes to PC monetization via personalized search results, a greater focus on ads quality scores, and promotion of long-tail keywords as long term positives, which should drive a better user/merchant experience and sustained growth." Furthermore, "Mobile take rate was ~60% of PC take rate in 3QFY15, and we think there's significant room for mobile take rate increases despite near term pressure stemming from the recent suspension of online lottery sales."

Bottom line, "Trading at 23.8x non-GAAP CY16E EPS, relative to a 26% ’16-18 EPS CAGR, shares look attractive and we would be buyers on the current weakness. The valuation is on par with Tencent’s 24.2x but above Baidu’s 19.1x. Also , shares trade at a significant discount to Facebook's 33.6x CY16E P/E despite having a similar earnings growth profile."

According to TipRanks.com, which measures analysts' and bloggers' success rate based on how their calls perform, analyst Alex Yao has a total average return of 14.5% and a 57.1% success rate. Yao has a -13.9% average return when recommending BABA, and is ranked #764 out of 3535 analysts.


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