RBC Capital’s Mark Mahaney Sets High Expectations on Alibaba (BABA) Ahead of FQ4 Earnings Show

RBC Capital's Mark Mahaney continues to cheer BABA as a standout play on monster growth prospects- from China to the world wide web.


With Alibaba Group Holding Ltd (NYSE:BABA) gearing up to dish its fourth fiscal quarter earnings for 2018 in a weeks’ time, one of Wall Street’s best performing analysts believes the e-commerce can achieve Street-wide “ballpark reasonable” expectations.

Top analyst Mark Mahaney at RBC Capital is now factoring in segment profitability data into his estimates to offer investors improved visibility into each one of this tech company’s segments. Likewise, the analyst pushes ahead his model to consider quarterly outyear expectations for 2019.

The analyst reiterates an Outperform rating on BABA stock with a $220 price target, which implies a 25% upside from current levels.

For the fourth fiscal quarter, Mahaney calls for 60.7 billion RMB, just ahead of the Street’s 58.8 billion RMB projection; adjusted EBITDA of 22.5 RMB with a 37% margin, more bullish than the Street’s 21.4 billion RMB estimate; and adjusted EPS of 6.56 RMB, over the Street’s 5.67 RMB expectations. Notably, the analyst has dialed up his EBITDA expectations from 24.6 billion RMB while cutting his non-GAAP EBITDA expectations from 7.84 RMB. For fiscal 2019, the analyst is boosting his revenue forecast by roughly 1% to 353.3 billion RMB, above the Street’s 345.7 billion RMB estimate. Yet, this is notably offset by Mahaney’s approximately 2% EBITDA estimate cut to 150 billion RMB, which still stands ahead of the Street’s 141.9 billion RMB. Mahaney keeps an eye on the BABA team to offer guidance commentary for the year.

Here’s why this Chinese tech stock is such a compelling buy: Mahaney sizes up BABA as “a great play on the dramatic secular growth that is China,” where China per capita GDP growth soars past the U.S. even at just one seventh of its size. Next, this company is an enticing grab on the massive secular growth of the Internet universe. Third, the company’s long-term focus and standout execution leave Mahaney quite impressed.

Other pivotal items Mahaney highlights approaching the print include: 1) Margin trends. The analyst angles for a gross margin of 62% and EBITDA margin of 37%, “as high levels of spend continue into Q1.” 2) Core commerce revenue. The analyst expects BABA will deliver 39.3 billion RMB in China Commerce Revenue, which would suggest 46% year-over-year growth and take a whopping 65% slice of the company’s total revenue. On an International Commerce revenue front, Mahaney bets BABA realizes 6.1 billion RMB, marking a 54% year-over-year surge and 10% of total revenue. “We are forecasting Other Revenues here of $4.8B which includes the recent Cianiao integration. Overall, we expect Core Commerce to grow 59% Y/ Y to 50.2B RMB. 3) Cloud Computing Revenue – Cloud Computing is still small (~5% of Revs) but represents a potentially very large $30-$40B market opportunity for Alibaba. For FQ4, we expect Cloud will grow 103% Y/Y to 4.4B RMB in Revenue. We believe the company’s focus in Cloud remains growing customers and market share and not profitability. 4) Other Revenue – We forecast Digital Media & Entertainment Revenue to grow 32% Y/Y and reach 5.2B RMB, marking 9% of Revenue,” surmises the analyst.

Mark Mahaney has a very good TipRanks score with a 69% success rate and a high ranking of #24 out of 4,778 analysts. Mahaney yields 22.7% in his annual returns. When recommending BABA, Mahaney garners 39.5% in average profits on the stock.

TipRanks exhibits this Chinese e-commerce king as a stock to buy based on Wall Street consensus opinion, where unanimously all 16 analysts polled in the last 3 months rate a Buy. With a healthy return potential of nearly 33%, the stock’s consensus target price stands at $234.56.

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