RBC Capital Cuts Price Target for Alibaba Group Holding Ltd, But Remains Positive

In a research report released after market close today, RBC Capital analyst Mark Mahaney maintained an Outperform rating on Alibaba Group Holding Ltd (NYSE:BABA), while slightly reduced the price target to $110 (from $115), which implies an upside of about 27% from current levels.

The report comes after the Chinese e-commerce giant released its earnings results that largely beat Street expectations with a strong Mobile performance highlighting that the shift away from Desktop is well underway. In reaction to the results, shares of Alibaba closed today at $86.20, up $6.2 or 7.75%.

Mahaney noted, “Revenue of 17.4B RMB beat our/Street views of 17.3B/16.9B RMB, while EBITDA of 8.6B RMB just missed the Street’s 8.73B. Non-GAAP EPS of 3.00 RMB handily beat our/Street estimates of 2.74/2.68 RMB. The major delta vs. Street revenue was China Commerce revenue, so this was a high-quality revenue beat. GMV was just slightly below the Street (600B RMB vs. 603B RMV), but monetization was higher than expectations with a 2.17% blended take rate (vs. the Street’s 2.06%). This was a major issue last quarter, so this reversal is a positive.”

Furthermore, “With weak expectations going into the print, BABA results were strong, though maybe not exceptional. Growth largely decelerated at BABA despite easing comps, and we saw Desktop GMV decline for the first time. However, we saw clear traction on the Mobile side, which should continue in the coming quarters. We continue to believe the BABA Long Thesis is very much intact. BABA remains THE dominant Chinese ecommerce platform, with very robust & consistent Buyer & GMV growth rates (40%+), very high EBITDA margins (50%+), substantial FCF generation, a very consistent management team & strategy, and significant option value in terms of non-retail revenue streams in China and International expansion.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a total average return of 21.9% and a 63.6% success rate. Mahaney has a -17.9% average return when recommending BABA, and is ranked #11 out of 3594 analysts.

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