Merrill Lynch analyst Eddie Leung chimes in on shares of Alibaba Group Holding Ltd (NYSE:BABA) following the Chinese e-commerce giant’s robust financial results for its fiscal first quarter. Applauding BABA’s technological competitive advantage over its rivals in accelerating monetization and skills in encouraging greater user engagement, Leung reiterates a Buy rating on Alibaba, raising the price target from $102 to $110, which represents a close to 12% increase from where the shares last closed.
For the quarter, Alibaba beat Leung’s revenue estimate, thanks to high-margin eC segments. In reaction, Leung raised his FY17E/ 18E sales by 3% and 1%, respectively, as well as boosted EPS projections by 23% and 5%, which the analyst anticipates fairly assumes extra domestic retail-channeled profits from fresh initiatives, like Lazada international eC site, Youku video, Cloud, Tmall Supermarket, map as well as equity pick up of the losses of Koubei O2O.
Confident on BABA’s future, Leung asserts, “We expect insignificant impact from the recent advertising regulation on search ads, which could increase co’s business tax rates by ~1ppt and affect clickthrough rates of its pay-for-performance ads moderately. Risks include stock overhang of pre-IPO strategic investors and dilutive acquisitions.”
As a marketplace platform succeeding on a larger-scale, Leung notes that the online company has been outclassing its competitors in investments several times over in strategic R&D use to cater to users and merchants, while facilitating engagement and transactions amid these stakeholder groups. Right now, Alibaba is king of mobile outreach to users and monetizing effectively, especially considering that mobile users jumped an increase of 39% in the quarter. Meanwhile, functional and feature enhancement on the mobile app further drives engagement of mobile users.
Leung comments, “Advertisers use Ali for multiple purposes incl. branding, user recruitment and retention. In the longer term, we expect co to continue improving its data and sales process across multiple assets (e.g. video, mobile browser, search) to drive up take-rates on China eC, and to better monetize its tech infrastructure such as Cloud.”
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Eddie Leung is ranked #271 out of 4,120 analysts. Leung upholds a 64% success rate while earning 23.7% in his average returns. When recommending BABA, Leung yields 1.8% in average profits on the stock.
TipRanks analytics demonstrate BABA as a Strong Buy. Based on 25 analysts polled in the last 3 months, 23 rate a Buy on Alibaba, while 2 maintain a Hold. The 12-month average price target stands at $106.95, marking a nearly 9% upside from where the stock is currently trading.
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