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What’s in Store for Alibaba (BABA) Stock Ahead of Earnings

support@smarteranalyst.com (Ben Mahaney)

Though not the “hottest” company in retail, Alibaba (BABA) is still a force to be reckoned with.

The Chinese company’s market cap may be half-that of chief competitor Amazon, but it’s still nearly $200 billion higher than that of Walmart’s. While the stock dropped 20% in 2018, it's up 35% since the beginning of the year, and nearing its all-time high.

Many expect the stock to remain above this level. UBS analyst Jerry Liu is one of these bullish voices, as he maintains his Buy rating on BABA with $210 price target, which represents about 12% upside from current levels. (To watch the analyst’s track record, click here)

Ahead of Alibaba's earnings release next month, Liu says he expects the company "to show more balanced revenue and EBITDA growth in FY20 compared to FY19”, which he calls a “difficult year.” He points to regulatory and macro challenges as roadblocks, but expects “Alibaba to invest in new opportunities” moving forward.

But while Liu expects investment to grow, he says “profits in high-margin Customer Management (CMR) and Commissions should drive EBITDA growth acceleration.” The analyst estimates “losses from strategic investments, mainly Ele.me (food delivery), Lazada (international), Freshippo and Tmall Direct Import (new retail) and Cainiao (logistics)” to grow, but expects losses to be offset by “Marketplace-Based Core Commerce, which we estimate can generate Rmb200B of adjusted EBITA in FY20.”

Looking ahead, Liu forecasts F4Q19 revenues of Rmb90.8B and EBITDA of Rmb21.0B, with CMR and Commissions revenue growth of 27.5% YoY and 26.5%. The analyst lowered Ele.me revenue estimate to Rmb5.0B to reflect more seasonality, similar to our Meituan assumptions, and models Core Commerce EBITA of Rmb24.7B in F4Q19. In FY20, Liu expects revenues of Rmb515.6B (+37.8% YoY) and EBITDA of Rmb150.3B (27.6% YoY).

A Chinese company with major US operations, Alibaba was caught in the middle of the US-China dispute last year — and its stock suffered as a result. But the 2018 selloff wasn’t necessarily a referendum on Alibaba as it was on the US-China relationship, which has allowed for the company to rebound strongly in 2019. Assuming the dispute doesn’t come back to the forefront, Alibaba investors will continue to be able to judge the stock based on the company's numbers, and not external factors.

This is great news for the fast-growing retailer. And Wall Street agreed. TipRanks analysis of 18 analyst ratings shows a consensus Strong Buy, with all 18 analysts recommending Buy. The consensus price target among these analysts stands at 212.06, which implies a 13% upside.(See BABA's price targets and analyst ratings on TipRanks)

 

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