This week, Baird’s top analyst Colin Sebastian attended Alibaba’s (BABA) investor day in Hangzhou, and overall, meetings reinforced his positive view of Alibaba’s significant growth opportunities from digitizing key elements of the Chinese and global economy – including retail, logistics/last mile delivery, media and payments – while also carving out a leadership position in cloud services.
General sentiment among investors going into the event was to expect lower margin guidance, given increasing investments in Services. However, CFO Maggie Wu stated that there was no update to the guidance provided on the March earnings call.
Sebastian commented, “While many investors expected explicity lower margin expectations, management chose instead to focus more holistically on areas of growth and investment (core commerce business remains healthy.) On one hand, this should be viewed positively given some of the overhangs on shares; however, it is also clear that Alibaba plans to prioritize new initiatives over harvesting profits – a reasonable strategy, in our view, but puts out-year consensus margins at risk.”
While near-term sentiment likely remains clouded by macro issues, investment spending/ margin trends, Jack Ma’s pending retirement, government regulation and changes to the core Taobao app, Sebastian believes the stock remains an attractive proposition for investors with longer-term time horizons.
As such, Sebastian reiterates an Outperform rating on BABA with a price target of $215, which implies an upside of 37% from current levels.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Colin Sebastian has a yearly average return of 27.8% and a 74% success rate. Sebastian has a 29.9% average return when recommending BABA, and is ranked #17 out of 4876 analysts.
The chip giant now looks like a very compelling investing opportunity, as TipRanks analytics showcasing BABA as a Strong Buy. With an average price target of $236.63, analysts are predicting massive upside potential of 47% for the stock. In total, Alibaba stock has received 16 back-to-back buy ratings in the last three months. (See BABA’s price targets and analyst ratings on TipRanks)