MKM: Buy Alibaba On Weakness

• Shares of Alibaba Group Holding Ltd. BABA have declined over 36 percent, year to date, from the peak of $105.03 achieved in January.
• MKM Partners’ Rob Sanderson has maintained a Buy rating and price target of $105 on Alibaba.
• Despite the negative impact of the correction in the Chinese stock market of Alibaba’s stock, Sanderson believes that the investment thesis on the stock remains intact and that investors should continue to accumulate Alibaba’s shares.

MKM Partners has recently completed Volume 4 of their proprietary Chine consumer survey, with a focus on “(i) spending intentions, (ii) preferred sites, (iii) shopping preference (online marketplace vs. direct seller), (iv) implications of mobile shift and (v) receptivity to emerging online categories.”

The results showed that 77 percent of respondents did not intend to reduce spending on goods and services in the near term. In addition, 44 percent of the respondents said that they intended to shift to spending online, with more than 50 percent expressing that they did not expect any change in the amount allocated. Less than 8 percent intended to shift to more physical retail.

The survey also indicates that eCommerce in China has a robust outlook for growth. Alibaba’s continues to dominate consumer responses, with 67 percent saying that they preferred Alibaba’s over other eCommerce sites.

“The majority of respondents prefer an online marketplace to a direct seller model,” the MKM Partners report stated, while adding that 41 percent of online purchases over the past year were made from mobile devices, which the responses to the survey suggest is likely to increase to 47% in the next 12-months.

In addition, “Chinese consumers show strong interest in emerging online categories like recreation, food, health goods and jewelry,” Sanderson added.