Revisiting Alibaba Group Holding Ltd’s (BABA) Investment Thesis

Oppenheimer's Jason Helfstein sees more revenue upside waiting in the wings for the Chinese e-commerce king.

As the transformation of Alibaba Group Holding Ltd (NYSE:BABA) and its rapid-fire growth lifts off, one bull is out with a second glance at the company’s biggest revenue and valuation catalysts.

Oppenheimer analyst Jason Helfstein would not be surprised to see Ali Cloud 2019 revenues scale up to the mountain of Amazon’s AWS revenues back in 2014 and Microsoft Azure’s just last year.

Believing the e-commerce king of China has substantial drivers of revenue and asset value alike, the analyst reiterates an Outperform rating on BABA stock with a $220 price target, which represents a nearly 13% upside from current levels. (To watch Helfstein’s track record, click here)

Making a bullish case, Helfstein boils down his soaring confidence on the e-commerce giant into four leading points: “In our view, growth will be fueled by Alibaba’s improving personalization in ecommerce through data-driven AI and media integration, continued adoption of Alibaba Cloud and greater physical store exposure […] Our positive thesis is based on: 1) unrivaled dominant position of core business; 2) its ‘New Retail’ strategy should generate significant revenue for Alibaba’s retail business, providing upselling opportunities; 3) Alibaba’s pioneer ecosystem creates significant barriers to entry; and 4) Uni-marketing could help capture more revenue among China retail distribution channels.”

The company’s platform currently boasts 488 million active consumers willing to shell out a whopping $1,223 in U.S. dollars every year. “We expect Alibaba’s China Commerce business to grow at a 38% CAGR from 2016 to 2020, driven by further integration into the retail distribution channel and reacceleration of B2B business. New Retail program aimed to meet the need of Chinese middle-class. ‘Fulfilled-by-Cainiao’ provides further revenue upside,” asserts the analyst.

Meanwhile, the analyst recognizes that the company’s revenue from a one-two punch of cloud computing and Internet infrastructure spiraled up to $982 million in fiscal 2017, with cloud revenue bringing $1.6 billion to the table- a 15% slice of China’s public-cloud market. The analyst is now calling for 85% through fiscal 2020 in yearly gains for the e-commerce player.

With enthusiasm for Alibaba’s prospects, Helfstein boosts his China commerce revenue expectations by 4% on stronger-than-anticipated China gross merchandise value (GMV) along with other revenues, from Intime to Hema to Cainiao Logistics revenue. However, the analyst scales back his EBITDA margin forecast on steeper COGS together with sales and marketing costs. As such, while Helfstein hikes revenues by 4%, EBITDA he cuts by 2%. For context, the analyst’s revenue and EBITDA expectations align with the Street, but his non-GAAP operating income and EPADS estimates fall under consensus.

TipRanks underscores a strong analyst bullish consensus betting on Alibaba stock. All 16 analysts polled in the last 3 months rate a Buy on this e-commerce king of China. With a return potential of nearly 11%, the stock’s consensus target price stands at $217.15.

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