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Just How Much Will Alibaba Group Holding Ltd (BABA) Impress Investors with FQ3 Outcome?

Nomura's Jialong Shi is out with a bullish quarterly preview of this Chinese e-commerce king ahead of February's print.


Ahead of a third fiscal quarter print from Alibaba Group Holding Ltd (NYSE:BABA) set for February 1st, one bull is upbeat on this Chinese e-commerce king, telling the Street to watch out for top-line gains primed to impress.

Nomura analyst Jialong Shi is upbeat on the company’s investments in new retail initiatives that may ramp up in the new year and bets earnings will see a 20% year-over-year ramp in growth and revenue will jump 51% year-over-year.

To take under account these higher investments, the analyst reiterates a Buy rating on BABA stock while dialing the price target down slightly from $221 to $219, which implies a 15% upside from current levels. (To watch Shi’s track record, click here)

For the third fiscal quarter of 2018, the analyst bets revenue will rise to CNY80.3 billion, a 1% notch ahead of Bloomberg consensus. Shi projects China retail revenue will surge 45% year-over-year and 49% quarter-over-quarter to CNY59 billion on back of the following three drivers: 1) a 39% year-over-year and 51% quarter-over-quarter hike in customer management revenue to CNY39.5 billion 2) a 35% year-over-year and 65% quarter-over-quarter in commission revenue growth on Double 11 3) fresh retail initiatives including Intime and Hema contributing a majority in CNY 3 billion in revenue to the Chinese e-commerce king. Additionally, “Cainiao, which was consolidated in October 2017, likely generated CNY3bn in revenue. We think the physical goods GMV for Tmall likely maintained 40%-plus growth as it did previously,” highlights the analyst.

Shi contends, “New retail investments likely accelerate in CY18F JD, Meituan and some offline supermarkets are opening stores similar to Alibacked Hema, which suggests to us that the Hema model is an effective approach to penetrate fresh produce categories. We believe Ali’s investments in new retail initiatives could accelerate in CY18F to secure better locations and properties in advance of competitors for its brick-and-mortar stores. Hema announced plans to open 30 stores in Beijing alone this year, even more than the 25 it opened in China in 2017. Consequently, we trim our FY18/19F EPS by 1%/6% respectively to reflect higher investments.”

TipRanks showcases a strong bullish consensus betting on this Chinese e-commerce giant, with all 17 analysts polled in the last 3 months rating a Buy on BABA stock. With a solid return potential of nearly 14%, the stock’s consensus target price stands at $216.00.