Susquehanna: Alibaba Group Holding Ltd Competitive Position Is 'Secure'

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Alibaba Group Holding Ltd's BABA leading competitive position in the Chinese e-commerce sector is secure according to an analyst who on Monday forecast sales growth of 37 percent in each of the next three years.

Susquehanna's Brian Nowak initiated coverage on the newly public Internet behemoth with a Positive rating and $110 target.

Despite Alibaba's notoriously fickle medium, "we don't see Alibaba's strong competitive positioning changing," Nowak said in a research note.

Nowak also figures that tweaks to the company's online market place could offer additional revenue sources.

The sites include TaoBao Web site, which caters to smaller buyers and sellers as well as its Tmall site that currently provides Alibaba with a comparatively wide profit margin and caters branded retailers.

Cantor Fitzgerald, MKM Partners, Wedbush Securities and CRT Capital each initiated Alibaba coverage earlier this month, each with Buy ratings.

Cantor's Youssef Squali acknowledged that "the stock's not cheap," but the company's current growth and profit margins, "if sustained, should support higher valuation over time.”

Nonetheless, risks to Alibaba include its Variable Interest Entity ownership structure which insures that Alibaba shareholders don't actually own a stake in the company at all, Nowak said.

The structure is "an intricate ruse" according to the the U.S.-China Economic Security Review Commission, a group set up by Congress in 2000.

"For U.S. investors, a major risk is that the Chinese shareholder of the VIE will steal the entity, ignoring the legal arrangements on which the system is based," the commission said in a June report.

Alibaba, with an initial public offering price of $68 per share last week, are down about 5 percent from its high of $99.70.

Alibaba traded recently at $89.08, down 1.5 percent.

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Posted In: Analyst ColorPrice TargetInitiationAnalyst RatingsBrian NowakSusquehanna
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