Mark your calendars: Alibaba (BABA) is slated to report its quarterly operating results after the market close on Wednesday, May 15. The Chinese e-commerce giant is going into its earnings report surrounded by much investor uncertainty. Specifically, the US-China trade dispute is making headlines yet again and may adversely impact the company in the near-term.
However, ahead of the print, RBC's top Mark Mahaney is bullish on Alibaba stock, maintaining an Outperform rating and $210 price target, which implies about 20% upside from current levels.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Mahaney has a yearly average return of 24% and a 68% success rate. Mahaney is ranked #32 out of 5,181 analysts.
"Based on intra-q data points and model sensitivity work, we believe Street FQ4:19 estimates are reasonable. We look forward to hearing updates on monetization changes to recommendation engines, the trajectory of Marketplace-based Core Commerce Profitability, & potential FY20 Revenue guidance (Street +35% Y/Y)," Mahaney noted.
Wall Street expects Alibaba to continue growing at double-digit rates, as all its segments are expected to continue their rapid rises. Core Commerce, its e-commerce segment, is expected to rise about 40%, and continuing to account for the majority of total company sales. Though the rest pales in comparison to e-commerce, Wall Street will also be focused on gains in Cloud Computing, which, while only making about 6% of total revenue, has a large market opportunity to exploit.
Margins will also be a focus for many on Wall Street. While Alibaba has higher profit margins than Amazon, its gross margins in its January quarter release showed its worst performance in three years. Mahaney expects this to continue, estimating margins will decrease 300 basis points since last year, to 44.5%. But while profit may be something investors focus in on, Alibaba still sees strong cash flow, which is enabling it to invest in and generate revenue from other areas.
Looking ahead, investors are curious how the company will branch out of China. 90% of Commerce revenue is generated domestically, with Alibaba trying to spread its wings by investing in companies in other countries and continents. For example, Alibaba is stake in Indian digital-payments company Paytm, as well as Lazada, an e-commerce company in Singapore.
Though the majority of Alibaba revenue is generated in China, the company still has strong ties to the US. As a result, the US-China relationship is important in many minds. While its stock has rebounded, the US-China dispute last year caused many to flee — and some are nervous that further deterioration of the relationship could have similar effects. Nevertheless, TipRanks analysis of 11 analyst ratings shows a consensus Strong Buy, with all 11 analysts recommending Buy. The price target among these analysts stand at $216.64, which represents a 22% upside.