SunTrust Robinson's Bob Peck Explains Alibaba's Underperformance - Alibaba Gr Holding (NYSE:BABA), Alphabet (NASDAQ:GOOG)

After having a fantastic IPO last year, Alibaba Group Holding Ltd BABA is losing the ground it gained following the IPO. In the last three months alone, the shares have lost almost 24 percent and currently trade at $86.50 levels. So, why is the stock underperforming?

Respected Internet analyst Bob Peck from

SunTrust Robinson Humphrey

was on

CNBC

Tuesday to answer that question.

“It’s a company that’s growing its top line, in sales or GMV north of 45 percent; its customers are growing 45 percent; its EBITDA margins have expanded from 50 percent to north of 58 percent now,” Peck said.

“So, across the financials, itsdoing very well,” Peck said.

Reason For Underperformance

“ The reason why it’s been underperforming is couple-fold though. One in the summer, they rolled out two changes that we have seen

Google

do historically and work very well for its playbook. And one is being more targeted and personalized in their organic results – ones they don’t monetize, that creates a better user experience, [which] ultimately brings more people to the platform.

“And number two is more targeted marketing as well. More longer-tail terms, which once again has worked very well for Google over time,” Peck said.

“The problem is you have to cycle through that now for a couple of quarters, and some of the shorter-term investors go to the sidelines.”

Two Important Factors To Consider

He added, “There’s two other things to point out as well: one is a red herring – which we think it is – is government relations. We think they have very strong government relationships and that

Jack Ma

knows the government very well, and they are creating economic opportunity within China with millions and millions of jobs.”

Number two Peck explained by stating, “The other is you do have a lockup coming up in March with about 400 million shares. So, once again those weigh short term on the shares; great opportunity for long term investors.”

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