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Does Wall Street Still Love Alibaba?

Does Wall Street Still Love Alibaba?
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  • Shares of Alibaba Group Holding Ltd (NYSE: BABA) have lost nearly 25 percent of its value year-to-date.
  • The stock surged as high as $85.24 on Tuesday following its second-quarter print, but gave up most of its gains and closed the day $79.41.
  • Analyst at Wedbush highlighted ongoing macro economic concerns while other firms took a more bullish stance.

Shares of Alibaba initially spiked higher Tuesday morning after the company reported that it earned $0.57 per share in its second quarter (September ending) on revenue of $3.49 billion. This compares favorably to the Street's estimates that were looking for the company to earn $0.54 per share on revenue of $3.35 billion.

Alibaba's stock spiked as high as $85.24 Tuesday morning but profit takers quickly jumped in. After a higher open, the stock rallied to $82.79 before reversing course and closing the day at $79.41.

Shares were up almost 2.6 percent at $81.53 on Wednesday morning.

Here is a roundup of what some of Wall Street's top analysts are saying after the print.

Morgan Stanley: Bullish On Monetization Prospects

Robert Lin of Morgan Stanley commented in a note that Alibaba's September quarter was "all about monetization rate (MR) improvement" as the company's MR was 2.42 percent, up 12 basis points year-over-year.

Lin noted that Alibaba saw a "robust" mobile MR (gaining 52 basis points year-over-year) while merchants were provided with separate bidding quality scores for mobile and PC which improved ranking transparency and offered merchants to better balance their advertising budgets.

Lin said Alibaba's gross merchandise volume (GMV) grew 28 percent year-over-year in the quarter and management "indicated confidence" in achieving its long-term GMV target of $1 trillion by fiscal 2020 – implying a five-year compounded annual growth rate of 20 percent.

Related Link: China Internet ETF Roars Back

Lin also noted that Tmall is becoming a "key branding platform" for softline retailers, as evidenced by the omni-channel initiative during the upcoming Double 11 (11/11 Singles' Day) event, which should allow Alibaba to begin capturing a larger percentage of the online and offline advertising markets.

Shares remain Overweight rated with a price target raised to $101 from a previous $98.70.

Brean Capital: Improving Monetization

Fawne Jiang of Brean Capital commented in a note that Alibaba demonstrated "solid" results with a stronger-than-expected revenue growth driven by improving monetization as a result of the company's efforts in increasing ad inventories and improved ad efficiencies.

Jiang noted that Alibaba continues to build its mobile platform as demonstrated by the "robust" mobile growth on both GMV and take rate. Mobile revenue grew 183 percent year-over-year to RMB 10.5 billion on GMV growth of 121 percent year-over-year and an improvement in mobile take rate of 2.39 percent (from 2.16 percent last quarter). The analyst added that the mobile take rate is expected to continue trending up and close the gap with PC which help drive the overall take rate over the long-term.

Jiang added that Alibaba also demonstrated its willingness to develop and improve its core ecommerce ecosystem and invest in the necessary initiatives to deliver a sustainable growth profile. The analyst acknowledged that while investments in its business will pressure margins, these efforts "should benefit the company in the long run."

Shares remain Buy rated with a price target raised to $98 from a previous $92.

Wedbush: Growth To Be Pressured By Slower Consumer Spending

Gil Luria of Wedbush commented in a note that Alibaba's management is taking steps towards a "more shareholder friendly approach" as the company's earnings per share beat the consensus estimate due to cost controls and a "more disciplined investment" activity. The company also reported "stable" margins and bought back $2.74 billion worth of shares in the quarter.

Despite the shareholder friendly initiatives, Luria pointed out that Alibaba's total GMV growth decelerated for the third consecutive quarter to 28 percent as "steep" declines in desktop GMV were offset by a growth in mobile GMV which increased as a percentage of total GMV to 62 percent.

Luria also noted that Alibaba's international commerce revenue grew only 13 percent year-over-year after growing 19 percent in the previous quarter. The analyst attributed this to overall China macroeconomic concerns which weighed on the demand environment abroad.

Finally, the analyst stated that even though Alibaba offers a "unique combination" of size, growth and profitability, growth will be "pressured" in the near term by an anticipated slowdown in consumer spending in China.

Shares remain Neutral rated with a price target raised to $80 from a previous $75.

Cantor Fitzgerald: Chinese Consumer Is ‘Alive And Well'

Youssef Squali briefly commented in a note that Alibaba's stronger-than-expected print was driven by growth in active buyers and higher monetization. The analyst noted that Tmall and mobile were "particular standouts" given its accelerated growth year-over-year.

Squali said Alibaba's results confirm that Alibaba's value proposition is "increasingly resonating" with consumers despite ongoing macro-economic concerns which is a positive well heading into the Double 11 event.

Squali also pointed out that management didn't rule out the possibility of buying back its stake from Yahoo! Inc. (NASDAQ: YHOO)

Shares remain Buy rated with a price target raised to $90 from a previous $88.

Elsewhere On The Street

Analysts at SunTrust Robinson Humphrey maintained a Buy rating and $100 price target.

Latest Ratings for BABA

Sep 2016Deutsche BankMaintainsBuy
Sep 2016Daiwa CapitalMaintainsBuy
Aug 2016JP MorganAssumesOverweight

View More Analyst Ratings for BABA
View the Latest Analyst Ratings

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