Top Analyst Sets Expectations on Alibaba (BABA) Ahead of Friday’s Earnings Show

Stifel's Scott Devitt is out with a confident call on BABA ahead of Friday's fourth fiscal quarter earnings showcase.


Top analyst Scott Devitt at Stifel is setting expectations on robust revenue steam from Alibaba (NYSE:BABA) come Friday morning, when this Chinese e-commerce king posts its fourth fiscal quarter print for the year.

In a bullish earnings preview, the analyst reiterates a Buy rating on BABA stock with a $260 price target, which implies a 45% upside from current levels.

For the fourth fiscal quarter, Devitt angles for roughly 53% year-over-year growth to ¥59.1 billion, essentially aligning with the Street’s expectations of a 42.4% year-over-year rise to ¥58.8 billion; and just ahead of the tail-end of the implied guide looking for 48% to 52% year-over-year growth.

That said, the analyst is dialing down his adjusted EBITA forecasts in the fourth fiscal quarter and forward to consider BABA’s continuous investments in new retail initiatives, video content, user experience, as well as the rising mix of lower margin businesses- including Cainiao. These “will likely weigh on the company’s overall profitability more than we had previously anticipated,” notes Devitt, who nonetheless backs the move: “While margin upside may be limited over the short-to-intermediate-term due to the heightened level of investment, we support these areas of focus.” For the short-term, the analyst is reducing his fourth fiscal adjusted EBITA estimate from ¥20.7 billion and a 35% margin to ¥19.0 billion and a 32% margin.

“China’s macro environment remains supportive of growth as total retail sales and online sales of physical goods grew 9.8% y/y and 34.4% y/y during the first three months of the year, respectively (according to the National Bureau of Statistics of China),” continues the analyst, who projects 97% year-over-year growth to ¥4.2 billion in cloud revenue growth. Devitt attributes this jump to sustained strength in paying customers as well as a growing mix to higher value-add add services. Additionally, the analyst estimates international commerce retail revenue of 84% year-over-year to ¥4.5 billion, mostly on back of Lazada and AliExpress.

Overall, “Aside from updates on core commerce growth, we expect investors to focus on: (1) Alibaba’s new retail initiatives (Hema, Intime, EasyHome); (2) updates on Cainiao and other logistics investments; (3) the recent acquisition of Ele.me; (4) progress in the cloud services business; (5) international; and (6) the recent Ant Financial transaction in which Alibaba took a 33% stake,” Devitt predicts.

Scott Devitt has a very good TipRanks score with a 73% success rate and a high ranking of #32 out of 4,772 analysts. Devitt garners 25.4% in his yearly returns. When recommending BABA, Devitt gains 38.9% in average profits on the stock.

This Chinese e-commerce king is one of Wall Street’s favorite bets, according to TipRanks analytics. All 16 analysts polled in the last 3 months rate a Buy on BABA stock. With a healthy return potential of nearly 30%, the stock’s consensus target price stands at $232.69.

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