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Alibaba analysts remain bullish after Q3 print


The Chinese e-commerce platform Alibaba Group Holding Ltd reported an earnings beat in its fiscal third quarter in January 30, just one day after its home country saw a “day of disaster” for earnings, according to Bloomberg

Wall Street reacted in different ways to this event:

  • Bank of America Merrill Lynch’s Eddie Leung maintained a Buy rating on Alibaba with a price target lowered from $221 to $215
  • UBS’ Jerry Liu maintained at Buy, price target lifted from $200 to $210
  • Raymond James’ Aaron Kessler maintained at Strong Buy, price target lifted from $260 to $285

Alibaba’s earnings report showed 41% YoY revenue growth to $17.4bn, which was 1.7% short of consensus estimates due to contra-revenues related to online-to-offline subsidies, stated Leung in a note.

By category, Chinese commerce retail revenue, which included new retail rose 35%; international retail rose 23%; consumer services revenue was up 3% from the prior quarter; and cloud/media/video growth decelerated from 91% last quarter to 84%.

Overall, the earnings report reinforced the bullish case for the stock, which is based on the belief that Alibaba will be a key beneficiary from stabilisation of China’s domestic consumption market and ongoing strategic initiatives that can open up large potential new markets, according to BofA.

Unlike prior earnings reports, the Street is likely to move its Alibaba estimates higher due to “slightly better” Chinese commerce retail revenue growth and improved losses from Youku, stated Liu in a research report. Alibaba’s tone also sounded “more positive,” which boded well, as the analyst was modeling for an acceleration in EBITDA growth from 12.7% in fiscal 2019 to 26% in fiscal 2020.

Kessler’s shared three main takeaways from Alibaba’s earnings report: 

  • “Solid” marketplace core commerce revenue growth of 27% YoY and marketplace commerce EBITA growth of 31%.
  • Chinese retail annual active customers rose 23% to $636mn, while mobile monthly active users rose 21%
  • New retail revenue of $1.68bn was 23% above estimates.

The earnings report includes two negative data points, the analyst said:

  • Commission revenue growth slowed from 31% last quarter to 24% and fell short of expectations due to changes in accounting
  • Digital media and entertainment suffered from slower advertising revenue growth, which the company said will likely persist through the March-ending quarter

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