Alibaba Group Holding Limited (BABA) Remains Stifel’s Top Pick


As Alibaba Group Holding Ltd (NYSE:BABA) released a solid fiscal first quarter report yesterday, investors rewarded the e-commerce giant with a 6% bump in shares. Top analyst Scott Devitt of Stifel attributes the company’s success to customer engagement and personalization, expansion of services and categories, mobile functionality and cloud computing among a number of other metrics. The analyst further points to the company’s guidance for FY:18, which shows continued growth in revenue between 45-49% year over year and that BABA will be strengthening its marketing investments.

Over the last quarter, the company pulled in ¥50.2 billion in revenue, which was in-line with the analyst’s expectations, but beat the Streets estimate of ¥47.8 billion. Meanwhile, the quarters 50% EBITDA margin exceeded both consensus and Devitt expectations by 4% and 5%, respectively, while EPS also did better than expected at ¥7.95 compared to consensus which predicted ¥6.29 and the analyst’s ¥7.27.

In explaining the impressive EBITDA, Devitt underscores that “expense line items declined as a percentage of revenue reflecting solid operating leverage offset by the company’s investment in marketing, digital media, Lazada, customer acquisition, and product enhancements.”

The analyst explains the lower than expected growth of digital media and entertainment, opining that “Alibaba sacrifices ad revenue to gain subscriber growth and improve the consumer experience.”  Additionally, notes Devitt “The strength in mobile was driven by the May rollout of an updated Taobao interface which has resulted in improved user experience and engagement as Alibaba continues to leverage personalization efforts. The strong growth in the cloud services business was driven by paying customers growth of 75% y/y (1.01mm) and the company’s improved revenue mix to higher valued-added services.”

“Alibaba continues to successfully build a defensible global commerce ecosystem […] the new retail strategy will expand the addressable market as the company connects the online and offline shopping experience to realize healthy synergies,” says Devitt.

As such, Devitt reiterates a Buy rating on BABA, raised the price target to $190 (from $180), while highlighting the stock as a top pick.

Scott Devitt has an excellent TipRanks score with a 72% success rate and a high ranking of #54 out of 4,614 analysts. Devitt realizes 19.4% in his annual returns. When recommending BABA, the analyst earns 42.6%.

TipRanks analytics demonstrate BABA as a Strong Buy. Current all 14 analysts  polled by TipRanks in the last 3 months are bullish on Alibaba stock. The 12-month average price target stands at $175.15  representing a near 6% upside from current trading levels.

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