Alibaba (NYSE: BABA) faced scrutiny last year for selling counterfeit goods but the e-commerce company has been diligently working to rebuild its reputation and restore credibility. The site poured over $160 million into consumer protection efforts in 2013 and 2014 and increased efforts to remove phony listings on Taobao and TMall, Alibaba’s largest platforms.
Analysts are anticipating Alibaba’s lock-up expiration on March 18th, when most trading restrictions will be removed for corporate insiders and big investors. Next week, 429 million more BABA shares will be available to be sold and purchased, accounting for about 16% of total available Alibaba shares.
Additionally, Alibaba halted the sale of lottery tickets last week after the General Administration of Sport announced efforts to curb illegal lottery sales while they revise the supervision system. Alibaba assured customers that they would honor winning lottery tickets that were bought last week. The suspension is temporary and experts think it will be resolved quickly due to demand as purchasing lottery tickets online is gaining popularity, accounting for nearly a quarter of total lottery sales in 2014.
According to SmarterAnalyst, Victor Anthony of Axiom initiated coverage on Alibaba with a Buy rating and a $110 price target on March 9th. In regards to Alibaba’s recent woes with counterfeit goods and run in with China’s SAIC, Anthony noted, “The valuation on the stock has been reset.” Anthony is optimistic after “checks with Chinese e-commerce executives” and believes that “Alibaba is likely to overcome… recent woes.” Anthony’s lists existing risks, including “1) Mobile monetization could stagnate and desktop monetization could continue to decline; 2) Lock-up expirations; 3) Concerns of counterfeit and fake items could continue to harm the integrity of the platform; 4) Future unfavorable actions or disagreements with state agencies; 5) inefficient capital allocation; 6) slowing economic growth in China could pressure GMV growth; 7) heavy investments could pressure margins.” He concluded, “The lock-up expiration next week should create share price volatility but as with most lock-ups we see the supply being absorbed over time with consistent execution. The risk-reward to owning the shares at these levels is in investors’ favor with upside of 48% in our bull-case model versus downside of 13% in our bear-case model.”
Victor Anthony has a 73% overall success rate recommending stocks with a +18.9% average return per recommendation.
Separately on March 9th, analyst Dick Wei of Credit Suisse maintained an Outperform rating on Alibaba but lowered his price target from $113 to $112. Wei noted, “We err on the side of caution regarding BABA’s GMV forecast over the next few quarters, as BABA introduces new policies to improve service quality, enforces stricter requirements for new merchant entering TMall, and suspends lottery sales. The policy changes should be positive on GMV growth in the long term.” The new policy to which Wei is referring was announced by TMall on March 2nd and establishes a “flagship store exclusive for merchants… on an invitation basis.” In addition, “TMall will adopt a new anti-cheating mechanism” to ensure merchants maintain legitimacy.
Dick Wei has an overall success rate of 38%, however he has an impressive average return per recommendation of +24.2%.
Overall, the top analyst consensus for BABA on TipRanks is Moderate Buy.
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