Oppenheimer and one of the best analysts on the Street at RBC Capital are out with conviction backing two of the e-commerce universe’s stock kings: Amazon.com, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Ltd (NYSE:BABA).
Oppenheimer believes Amazon stands out among the large cap universe, and has moved to a new valuation model, prompting the analyst to anticipate even greater upside for shares. Nonetheless, the analyst’s main concern boils down too overly aggressive Street expectations considering Amazon’s investments picture. Meanwhile, Alibaba has RBC Capital singing its praises. Even as the top analyst conservatively projects just below consensus, he sees an untapped cloud computing market opportunity to the tune of $30 to $40 billion waiting in the wings for the Chinese e-commerce giant to grab for the taking. Let’s take a closer look:
Amazon Leads in the World of eCommerce- But Is the Street Reaching Too High?
After moving to a new two-part sum-of-the-parts (SOTP) model for Amazon, Oppenheimer analyst Jason Helfstein sings the praises of the online auction and e-commerce leader’s “Secular Story Unique Among Large-Cap Universe,” reiterating an Outperform rating on shares of AMZN while raising the price target from $970 to $1,100, which represents a just under 15% increase from where the stock is currently trading.
Amazon’s “category-leader nature” both domestically and abroad for Amazon Web Services (AWS) appeals to Helfstein, who sees great value in this geographic segment in the new SOTP model. The only real problem from the analyst’s eyes is that the Street margin projections come across as harsh, presenting some “risk” amid the new investment cycle.
For 2017 estimates, the analyst is pulling 1% back in his sales expectations and cutting back 3% in his 2018 sales estimates, which he attributes to “modestly decreased assumptions for International/AWS.” Additionally, the analyst is lowering his 2017 estimates for EBIT by 13% and for 2018 by 31%, finding his pas model’s take on consolidated margin expansion is “now too aggressive based on 2Q guidance.”
Ultimately, “While we still believe Amazon is a ‘must own’ within large-cap given a number of greenfield opportunities, and the leading position in global eCommerce, we believe Street estimates may be aggressive on margins. While mgmt guided 2Q:17 margins down 217bps year/year, the Street is modeling FY18 margins up 122bps, aggressive in our view, given the need to invest in: 1) domestic grocery infrastructure, 2) domestic home décor/furniture infrastructure, 3) Prime in India, 4) Prime in China, 5) Prime in Mexico, 6) Alexa R&D, 7) global video content, 8) Prime Now, 9) Prime Music and 10) adtech business,” contends Helfstein.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Jason Helfstein is ranked #148 out of 4,572 analysts. Helfstein has a 62% success rate and earns 12.6% in his annual returns. When recommending AMZN, Helfstein gains 36.3% in average profits on the stock.
TipRanks analytics indicate AMZN as a Strong Buy. Out of 31 analysts polled by TipRanks in the last 3 months, 28 are bullish on Amazon stock while 3 remain sidelined. With a return potential of 13%, the stock’s consensus target price stands at $1,085.36.
Alibaba Keeps Showcasing Stellar Profitability Levels
Thursday will be a big day for Alibaba investors, who will be jazzed to see what fourth fiscal earnings lie in store for the giant for the year. Though top analyst Mark Mahaney at RBC Capital has estimates maybe not quite as bullish as consensus, the bigger picture tells a far more promising tale. As such, the analyst reiterates an Outperform rating on BABA with a price target of $120.
For the fourth fiscal quarter of 2017, the analyst projects 35.7 RMB in revenue, just under consensus of 35.9B RMB. With slightly less confidence than consensus of 15.6B RMB, the analyst looks for a 43% margin and 15.4 RMB in Adjusted EBITDA, with Adjusted EPS expectations of 4.53 RMB that mirror the Street.
Cloud computing revenue carries a great deal of potential for the Chinese e-commerce giant from Mahaney’s eyes, as he notes, “Cloud Computing is still small (3% of revs) but represents a potentially very large $30-$40B market opportunity for Alibaba.” For the first fiscal quarter of 2018, the analyst anticipates Cloud Computing Revenue will see an 80% year-over-year rise, attaining 1.9B RMB in revenue.
Particularly, the top analyst commends Alibaba’s savvy new partnerships with Mattel, Chinese leading retailer Bailian, as well as a new foray into the India marketplace with Paytm Mall, a consumer shopping application. Through BABA’s TMall marketplace, Mattel will market and sell to the Chinese consumer space, “leveraging the company’s media ecosystem,” praises Mahaney, who also likes that the partnership with Bailan will pose more opportunities for retail ecosystem exploration.
BABA is in solid standing, as Mahaney concludes, “Fundamental trends remain impressive, especially the premium growth rates (42% Y/Y) in the Core China Commerce segment, as more brands/merchants advertise on BABA and average merchant spending increases. The Cloud Computing segment is demonstrating both scale ($1B revenue run rate) and hyper-growth (115% Y/Y). BABA continues to demonstrate high levels of profitability (64% Adjusted EBITA margins in Core Commerce; 51% Total Adjusted EBITDA margins; $4.9B in FCF in December Qtr). We continue to view BABA as a Premium-Growth/Premium-Profit Asset.”
Mark Mahaney has a very good TipRanks score with a 71% success rate and a high ranking of #24 out of 4,572 analysts. Mahaney realizes 18.6% in his yearly returns. When recommending BABA, Mahaney garners 24.4% in average profits on the stock.
TipRanks analytics show BABA as a Strong Buy. Based on 9 analysts polled by TipRanks in the last 3 months, 7 rate a Buy on Alibaba stock while 2 maintain a Hold. The 12-month average price target stands at $127.14, marking a nearly 5% upside from where the stock is currently trading.
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