Alibaba Will Make History In 2017 And Hit $115 Per Share, Morgan Stanley Says

• Shares of Alibaba Group Holding Ltd BABA have declined 16.02 percent over the past one month, down to $65.45 on January 20.
• Morgan Stanley’s Robert Lin has maintained an Overweight rating on the company, while raising the price target from $101 to $115.
• Lin expects the company’s monetization rate in China Retail to reach a historical high in FY2017, mitigating the impact of weakening GMV.

Analyst Robert Lin expects Alibaba to touch a historical high monetization rate (MR) of 2.61 percent in FY17, based on accelerating commission income growth and steady advertising revenue growth.

Lin cited three reasons for the expectation of multi-year MR increase. Firstly, increasing market share of branded merchants online is likely to drive the B2C GMV percentage to 50 percent by FY18.

Branded merchants had accounted for about 25 percent of the GMV in the high margin apparel segment in 2014, which was the lowest among the company’s six major segments, while top brands accounted for only 8 percent of the GMV in the same year.

“We expect online penetration to reach 19% of retail sales by 2020. Big brands will continue to shift channel spending to online platforms to penetrate lower-tier cities,” Lin stated.

According to the Morgan Stanley report, Alibaba’s monetization rater would peak when the channel cost and revenue growth rate of the online business would be the same as that for offline, which was unlikely in the near term.

“We forecast the long term monetization rate to be 2.9 percent, a conservative assumption based on a stress test scenario of the fashion category,” Lin added.