RBC's Mark Mahaney Explains Why He Lowered His Price Target On Alibaba

RBC Capital’s analyst Mark Mahaney lowered his price target on Alibaba Group Holding Ltd BABA on Wednesday to $110 from $105, but kept his Outperform rating unchanged.

Mahaney was on CNBC recently to explain why he lowered his price target on the stock.

Two Issues

“There’s two things that happened and they are both relatively material like 2 to 3 percent of revenue and GMV or merchandise value,” Mahaney began. “First is they had to stop because of government orders the online lottery business they were running, other online lotteries in China also had to stop. And secondly they implemented some price cuts for their group buying platforms.”

“So, both of those they announced these in March quarter actually, but since the company didn’t give guidance, it was hard to get a real read on what the materiality was. They announced at a conference in Beijing how material it was therefore the cuts in estimates that lowers the prices.”

Street’s Consensus Needs To Come Down

Mahaney was asked if by loweing his price target he is trying to get ahead of what people believe will be a seasonal slow quarter for Alibaba. He replied, “Yeah possibly there’s that. Our numbers is below the Street, we think, consensus needs to come down. I think a lot of this frankly is reflected in the stock that’s why we can still reduce estimates below the Street and still have an outperform on the stock.”

“This thing trades at less than 30 times earnings, I know that’s a premium multiple. But this is a company that’s got 30 to 40 percent revenue and bottom-line earnings growth for the next 2 or 3 years. We think that that means there’s an opportunity on the long side in this stock,” Mahaney concluded.