BNP Paribas: Alibaba Faces Near-Term Headwinds, 'Further Margin Decline,' But Is Still A Buy
In a report published Friday, BNP Paribas analyst Vey-Sern Ling maintained a Buy rating on Alibaba Group Holding Ltd (NYSE: BABA), while reducing the price target from $102 to $100.
Analyst Vey-Sern Ling expects Alibaba’s top line to come under pressure in the near term due to:
- Temporary suspension of online lottery sales, which is estimated to have a 2 percent GMV impact and 4 percent revenue impact
- Price cuts on Juhuasuan in April, which is expected to impact monetization by 10bps or revenue by around 3 percent
- PC take rate being 10bps lower y/y on account of “algorithm changes”
Alibaba’s core ecommerce business generates non-GAAP EBITDA margin in the high-50s. However, Ling expects margin to contract 4.7ppt y/y 48.8 percent in FY16 due to further investments in:
- “Digital entertainment and content
- Mobile platform and OS (including subsidies to handset manufacturers)
- Increasing traffic acquisition costs from the expanding Taobao Affiliate Network”
In the report BNP Paribas noted, “Despite nearly full penetration of online shoppers, we forecast a 25% CAGR in GMV to USD1.2t in FY20, driven primarily by higher ARPU from existing customers. We believe the c100m new customers added in FY15 can increase spending multiple-fold as their confidence and familiarity with the platform improves.”
The EPS estimates for FY16, FY17 and FY18 have been reduced from $10.78 to $9.73, from $15.84 to $14.48 and from $19.02 to $19.33, respectively, to reflect lower revenue and margin estimates.
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