It would be wrong to penalize Alibaba (BABA) stock for being down 22% year-over-year when the whole market is under heavy pressure.
Credit Suisse analyst Thomas Chong says the company is still worth investing in due to solid growth, a wide number of shoppers in China’s retail marketplace and an increasing presence of new customers – 75% to be exact – coming from less developed cities. (To watch Chong’s track record, click here)
Chong explains the fundamentals of core e-commerce remain solid despite the uncertainty in overall business sentiment. He also notes the company is big on customer value instead of just trying to gain traffic, which Chong believes will help the company gain a better understanding of customer profile in the long-term.
“Different from other companies which rely on external traffic, Alibaba’s ecosystem has strong viral effects and synergies to drive user growth. User growth is key to drive GMV and engagement is important to drive monetization. Physical goods GMV for Tmall remains in solid momentum with 30% YoY growth in Sep, down from 34% YoY in June. Large ticket-sized items such as consumer electronics are more impacted by macro-headwinds,” the analyst explains.
“We believe that in Nov-2018 market factored in the impact on FY19 full year revenue revision. Merchants are expected to be more cautious in outlook due to less inventory build up on special promotional events. Recommendation feeds and other value-added tools offered to merchants are keys to educate merchants about customer value as well as provide them with different monetization methods such as impression and sales-based models rather than search,” Chong says.
Looking ahead, there will also be some changes in law expected to be implemented in 2019 regarding e-commerce, which Chong expects will be supportive of the industry, as the government is auxiliary to the overall sector development. That in mind, Chong explains “transparency and fair treatment across different online platforms as well as among offline and online players is crucial.” The rules of this deal have yet to be announced.
Chong is not alone in supporting Alibaba through the tough times. TipRanks analytics reveals out of 23 analysts, every single one is bullish, making the consensus rating a “Strong Buy” and price target of $203, which shows a near 54% potential upside. (See BABA’s price targets and analyst ratings on TipRanks)