Rob Sanderson maintains a Buy rating on Alibaba's stock with an unchanged $245 price target.
Chinese stocks are likely to correlate with broader macro concerns and the ongoing Sino-American trade spat, Sanderson said in a Friday note. Alibaba boasts three catalysts that supports a bullish case for the stock, the analyst said.
Moderation In Spending
- Rival streaming video company Iqiyi Inc (NASDAQ: IQ) said its content cost escalation will show signs of moderation in 2019 and it is likely Alibaba's YouKu streaming business will similarly benefit from lower spend.
- Alibaba's investments in its food delivery business Ele.me could result in profitability after a "catch-up" investment spend period ends.
- Management appears to be watching macro conditions and a decision to slowdown new hiring is supportive of margins.
- The monetization of the "recommendations feed" remains untouched and could be turned on when the macro outlook becomes more certain.
- Search monetization continues to improve aided by algorithms and auction dynamics.
- The company has an untapped high-margin opportunity over time with third-party partners, including Starbucks Corporation (NASDAQ: SBUX).
- Alibaba's cloud is growing 1,300 basis points faster than AWS was at a similar stage in its development.
- Assuming Alibaba Cloud continues to grow at a similar pace versus AWS, it will become a 100-basis point margin tailwind in 2019 and expand to 170 basis points in 2020.
Alibaba shares were up 1.51 percent at $158.22 at the time of publication Friday.
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|Nov 2018||MKM Partners||Maintains||Buy||Buy|
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