On Tuesday, Alibaba (BABA) announced CFO Maggie Wu would become head of its strategic investment unit, replacing EVC Joe Tsai. This is big news, as the e-commerce giant is investing heavily in other companies, including multiple $100+ million investments in late May, according to Crunchbase. Alibaba also announced it would merge DingTalk with its cloud business and make Freshippo (supermarkets) a standalone entity. Investors reacted positively to the news, sending its stock up 3.5%.
In conjunction with the news, analyst Scott Devitt of Stifel reiterated his Buy rating on Alibaba stock with $220 price target, which implies over 30% upside from where the stock is currently trading.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Devitt has a yearly average return of 22% and a 70% success rate. Devitt is ranked #39 out of 5,201 analysts.
While Devitt sees Wu’s emergence as investment chief as a natural progression in the company’s leadership, it is the company’s other moves that are moving the stock. For one, DingTalk is China’s largest business collaboration app, and it will be merged with its cloud division. This could help cross-sell the platform, as companies not already on the cloud may now find an easier shift, with the same concept applying for those already on the cloud but not using DingTalk.
In Devitt’s eyes, an important piece of news coming from Tuesday was Alibaba’s stock split. The company proposed a one-to-eight stock split, which would increase the flexibility in the company’s capital raising activities, including the issuance of new shares. Devitt views the stock split proposal as a step towards a reported Hong Kong listing, with the company filing confidential paperwork last week to raise as much as $20B.
Alibaba continues to grow at a rapid pace. Last quarter, the company reported core e-commerce revenue had increased 51%, beating analyst estimates by 5%. In a similar fashion to Amazon Web Services’ rapid growth, Alibaba’s cloud division continues to rapidly expand, growing 76% over the last year. Though still not the same size as Amazon, Alibaba, too, continues to innovate and play a role in customers’ lives beyond just on the computer. Devitt says the company is refocusing its innovation initiatives unit to integrate more content offerings, including literature and music. Alibaba’s smart speaker, named Tmall Genie, is a large focus for the company, mirroring Amazon’s focus on its Alexa voice assistant.
All in all, though tensions between the US and China are playing a role in how some are viewing Alibaba’s stock, most see this as a bump in the road. TipRanks analysis of 16 analyst ratings agrees with this, showing a consensus Strong Buy, with all 16 analysts recommending Buy. The average price target among these analysts stand at $216.33, suggesting the stock can rise as much as 32%.(See NVDA’s price targets and analyst ratings on TipRanks)