After doing a deep dive analysis of Alibaba Group (NYSE:BABA) and the performance of its new retail and international segment, Oppenheimer analyst Jason Helfstein is out with an upbeat research note. The verdict here: Helfstein says Hema and Intime in new retail paired with a Lazada-led international business are powering the Chinese e-commerce king’s commerce gains.
As such, the analyst reiterates an Outperform rating on BABA stock with a $220 price target, which implies a 29% upside from current levels. (To watch Helfstein’s track record, click here)
“While F4Q offline business is negatively affected by the Chinese New Year holiday (2/16-2/23), the impact is largely offset by the new stores expansion (currently 35 stores in nine cities). We are also increasing Alipay-related expense estimates due to promotions including a Chinese New Year campaign (‘JiWuFu’). Additionally, the accounting treatment for Ant Financial shares remains under SMB loan referral revenue until stock exchange is completed,” writes Helfstein. When glancing at results from third-party data provider Analysys, Alipay’s market share has a 54.3% foothold now against Tencent Pay’s 38.2%; a far leap from lackluster rivalry in Baidu Wallet’s approximate 1%.
Based on Helfstein’s analysis, the analyst is boosting expectations for Hema from 40% year-over-year to 200% year-over-year, taking note that the third fiscal quarter of 2018 experienced rocket-fire 300% year-over-year growth. “Hema is increasing cooperation with real estate developers (e.g., Future Land Holdings in March), which should expand store footprint at a lower land cost,” adds the analyst, who likewise is more confident on Intime’s quarterly sales, jumping up expectations by 2 billion to 3 billion CNY.
Moreover, here is why the analyst pinpoints enthusiasm for Southeast Asia online retail giant Lazada, an investment where BABA carries roughly 83% in equity: “We are seeing: 1) More flexible merchant contract terms; 2) Improved logistics services in Malaysia; 3) Six-year anniversary promotion to be held (4/1-4/26) in five countries and 4) New merchant tool launched. As Ant Financial’s board chairman became the CEO of Lazada, we expect to see more cooperation between Ant Financial, Alibaba and Lazada.”
For the fourth fiscal quarter, Helfstein’s revenue expectations now sit 2% over the Street’s. Likewise, the analyst is more bullish than the Street on China Commerce to the tune of 4% ahead, and International Commerce 7% ahead. Helfstein’s gross margin forecasts is more confident than the Street by 4%, with EBITDA 7% ahead. For fiscal 2019, the analyst has taken his total revenue estimate 1% above the Street with GP 1% under. Encouraged by his analysis, the analyst surmises tweaking up his EBITDA for the next two coming fiscal years by 3%.
The Street loves this tech stock, according to TipRanks analytics. All 17 analysts polled in the last 3 months unanimously rate a Buy on BABA stock. With a health return potential of 40%, the stock’s consensus target price stands at $234.82.