Two of Wall Street’s Best Analysts Are Boosting Price Targets on Alibaba Group Holding Ltd (BABA) and Paypal Holdings Inc (PYPL)

SunTrust is captivated by BABA's powerhouse core retail; Baird deems PYPL cream of the e-commerce crop.


Alibaba to Benefit from Good Online Retail Sales in China

Alibaba Group Holding Ltd (NYSE:BABA) will be showing off its second fiscal quarter earnings for 2018 come November 2nd, and top analyst Youssef Squali at SunTrust is exceedingly confident on the Chinese e-commerce giant ahead of its print.

Highlighting particular “strength” in the company’s core Retail segment along with “consolidation of Cianiao and increased investment in 2H18,” the analyst reiterates a Buy rating on BABA stock while lifting the price target from $200 to $205, which implies a 14% upside from where the stock is currently trading.

Squali asserts, “We remain positive on BABA considering its leadership position and outsized growth and margins in China’s ecommerce market, its diversified portfolio of digital assets and current valuation.”

Anticipating stellar second fiscal quarter results, the analyst notes the Street has “robust” expectations, with FactSet predicting BABA sees a 59% year-over-year surge to $7,862 million in revenue coupled with $1.05 in adjusted EPS and $3,649 million in EBITDA. Squali is looking for $7,705 million in revenue, which would indicate a 50% year-over-year rise, $1.11 in adjusted EPS, and $3,635 million in EBITDA.

The “latest read on China online retail sales [is] a positive for BABA,” continues Squali, who notes that online retail sales spiraled up 35.6% in the third quarter, marking a step up from the quarter before that experienced 34.5% growth, according to the analyst’s analysis of data from the National Bureau of statistics in China. “We view the pick-up in online sales positively for Alibaba’s GMV growth, given the company’s dominant share of ecommerce in China and the positive correlation between the two metrics,” writes the analyst.

Retail is promising, as Squali underscores: “Growth in active users/monetization to drive healthy growth in China Retail. We expect China retail revenue to increase 52% Y/Y, powered by monetization gains and user growth. We expect monetization to continue to show improvement, rising 33.4% Y/Y, benefiting from tweaks across both mobile and desktop.” Active user growth should climb 7% year-over-year, the analyst predicts.

Squali concludes, “We expect the company to revise its 2018 outlook (provided at Analyst Day and reiterated in Aug.) for revenue growth of 45-49% Y/Y to reflect consolidation of Cianiao’s financials after increase in equity ownership,” and as such, he now calls for a 53% year-over-year climb in revenue to $35.61 billion for fiscal 2018, $4.88 in NEPS, as well as $15.45 billion in EBITDA.

Youssef Squali has a very good TipRanks score with a 73% success rate and high ranking of #54 out of 4,698 analysts. Squali garners 18.8% in his yearly returns. When suggesting BABA, Squali realizes 29.7% in average profits on the stock.

Make no mistake, Wall Street loves this Chinese e-commerce king, especially when taking note that TipRanks analytics exhibit BABA as a Strong Buy. Out of 16 analysts polled by TipRanks in the last 3 months, all 16 are bullish on Alibaba stock. With a return potential of 11%, the stock’s consensus target price stands at $199.73.

Paypal’s ‘Still One of the Best Plays on E-Commerce”

Paypal Holdings Inc (NASDAQ:PYPL) shares are taking flight to the sweet tune of 4% gains in the market today after the payment giant delivered a third quarter print for the year that has Wall Street cheering.

Top analyst Colin Sebastian at Baird believes this company stands out in the e-commerce playing field and after such a strong quarterly showing, he maintains an Outperform rating on PYPL stock while bumping up the price target from $65 to $80, which represents a 14% increase from current levels.

For the third quarter, which marks “another beat-and-raise quarter” for the giant, total payment volume (TPV) shot up 29% year-over-year to $114 billion, which also marks rapid-fire growth of 26% from just the last quarter. Additionally, off-eBay gains grew 34% year-over-year, 4% more than this time in the second quarter. Mobile payment volume escalated 54% year-over-year and Venmo TPV jumped 93% year-over-year to $9.4 billion, which the analyst attributes to strong branding amid “younger cohorts.”

Other standout parts of a knockout quarterly performance include net revenue leaping to $3.23 billion, outclassing consensus of $3.18 billion and the guide that set expectations between $3.14 and $3.19 billion; non-GAAP EPS hitting $0.46, trouncing both consensus as well as the tail-end of the guide between $0.42 and $0.44; and transaction growth racing up 26% year-over-year with user engagement maintaining momentum as it racked up a 9% year-over-year rise.

For the fourth quarter, the PYPL team angles for revenue between $3.57 and $3.63 billion, ahead of consensus of $3.56 billion, as well as EPS between $0.50 and $0.52, a notch above consensus of $0.51. On the heels of PayPal’s financial results, Squali his lifting his 2018 EPS forecast from $2.19 to $2.30.

“PayPal reported 3Q17 results that demonstrated accelerating growth across almost all key metrics, including TPV, revenue, transaction growth, and net new customer additions. With the roll-out of Pay with Venmo complementing strong core PayPal growth, we see multiple levers for ongoing market share expansion in the years ahead. We also see management’s preliminary 2018 outlook setting a reasonable floor for growth and profitability,” explains the analyst from a bullish stance.

With big drivers ahead, Sebastian contends with excitement for Paypal’s opportunity down the road, “Venmo monetization, ‘asset-light’ strategy are likely next catalysts. We believe that ‘pay with Venmo’ should not only drive incremental top-line growth, but importantly, could help stabilize consolidated transaction margin trends given a potentially more favorable Venmo funding mix. Additionally, the company intends to formalize an asset-light strategy for the credit business by year-end, which could free-up balance sheet capacity for capital returns and/or strategic acquisitions.”

Colin Sebastian has a stellar TipRanks score with a 76% success rate and an impressive ranking of #20 out of 4,698 analysts. Sebastian brings to the table 23.6% in his annual returns. When recommending PYPL, Sebastian collects 35.4% in average profits on the stock.

Most out on the Street are rooting for the e-commerce stock right there with the top analyst, as TipRanks analytics reveal PYPL as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 25 rate a Buy on Paypal stock while 7 maintain a Hold. The 12-month average price target stands at $72.07, marking a nearly 3% upside from where the stock is currently trading.