Alibaba (BABA) earlier this week posted strong earnings results that helped push its stock higher. But many investors weren’t focused much on performance, as concern has migrated to increased tension between the US and China. However, Alibaba executive vice chairman Joseph Tsai used the earnings call to downplay any nerve of a continued trade war, saying he expects China to continue purchasing more products from the US and narrow the gap between the two, an essential element as to why the US initiated the tariffs in the first place.
Regardless of the conflict, Baird’s top analyst Colin Sebastian is encouraged by Alibaba’s most recent quarter, as he maintains his Outperform rating on BABA stock with $195 price target.
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, Sebastian has a yearly average return of 26% and a 74% success rate. Sebastian has an average return of 28.3% when recommending BABA and is ranked #20 out of 5,183 analysts.
Overall, Alibaba had a strong final quarter to the fiscal year. Its main revenue driver — core commerce — grew 51% year-over-year (and about 5% above consensus). Its cloud business also continues to grow, up 76% since last year. Overall, total revenue came in at 49% higher than this time last year, though EBITDA margin fell.
Alibaba continues to invest in growing its market share. Sebastian says the company seeks to gain market share “in lower-tier cities amid increasing competition, with higher quality products offered at value prices,” as the majority of company’s new users come from these locations. As a result, “management is playing the ‘long game’ [with its Taobao feed], and pausing further rollouts in order to focus on growth and market share in other segments.”
But while Alibaba is known for its e-commerce strength, Sebastian says “the company’s influence across the digital landscape continues to expand,” noting a “string of acquisitions and internal investments [which] continue to broaden the revenue mix and investment profile.” For example, Alibaba is “closely tied to Alipay, an online payments company now larger than PayPal,” while it “possesses an emerging cloud computing platform (Aliyun), which we believe has significant potential to drive incremental growth.” So, similar to Amazon, while it is known for e-commerce, behind the scenes is an increasingly diverse and growing revenue stream
All in all, if last year is any indication, Alibaba and its investors do not want to see continued tension between the US and China. However, the Chinese e-commerce giant remains a ‘Strong Buy’ name among Wall Street analysts. In the last three months, BABA has won 15 back-to-back bullish recommendations. With a return potential of close to 30%, the stock’s consensus price target stands at $216.33. (See BABA’s price targets and analyst ratings on TipRanks)