Bernstein Remains Cautious, But Still Thinks Alibaba Stock Will Outperform

• Alibaba Group Holding Ltd BABA shares are down 23 percent year-to-date, and are trading meaningfully short of their 52-week high of $120.
• Bernstein’s Carlos Kirjner maintained an Outperform rating on the company, with a price target of $110.
• A strong performance of Single’s Day GMV indicates significant quarterly GMV acceleration in F3Q2016, Kirjner stated.

Analyst Carlos Kirjner mentioned that it was tough to extrapolate one day's GMV to the quarter's trajectory, since it is difficult to predict the impact of changes in consumer behavior. Despite this limitation, the analyst provided an estimate of Alibaba's China Retail F3Q16 GMV based on the Single’s Day GMV.

“Over the last few years, Single’s Day has become an increasingly large portion of the quarter's GMV, Kirjner said, pointing out that it was 5.52 percent in F13, 6.62 percent in F14, representing a 110 bps increase y/y, a 7.25 percent in F15, representing a 64 bps increase y/y. Therefore, while the percentage is increasing, rate of increase is declining.

“It is really a second order issue whether this is because there is more of a "pull-forward" effect, with consumers spending on Singles Day buying goods that they would otherwise buy some other time during the quarter, or whether there is more incremental GMV on Singles Day,” Kirjner wrote.

Assuming that Single’s Day 2015 GMV as a percentage of F3Q16 GMV is higher than the percentage in 2014 by 64 bps and 128 bps, it would be between 7.89 percent and 8.53 percent. This is merely an assumption, which could prove conservative.

These assumptions imply GMV between RMB 1,069 billion and RMB 1,156 billion in F3Q16, which translate to y/y growth of 36 percent to 47 percent.

“Both would correspond to a very significant acceleration versus last quarters' 28% YoY GMV growth, despite the fact that the lottery suspension occurred in F4Q15 and is still a headwind to the YoY GMV growth rate,” the Bernstein report stated.

Kirjner commented that his best guess is that the robust Single’s Day GMV performance may be indicative of significant quarterly GMV acceleration in F3Q2016.