Alibaba's Revenue To Grow Faster Than GMV, Analyst Says

Alibaba Group Holding Ltd BABA said its revenue would grow at a faster rate than gross merchandise volume (GMV) for the foreseeable future, according to Stifel analysts who met with the management of the e-commerce company.

Slowing GMV growth remains a concern among investors, as it acts as a proxy for consumer engagement on the platform. GMV for e-commerce retail companies indicates sale price multiplied by total number of goods sold over a period of time.

Alibaba's third quarter GMV growth of 23 percent was below expectations, driven by adverse weather and difficult comps against the iPhone 6 launch in the quarter.

"In our conversations, the company reiterated that Alibaba continues to execute towards its FY20 GMV milestone of ¥6.0T. While our FY20 GMV estimate is below this goal we do not incorporate international, rural, and vertical expansion growth opportunities," analyst Scott Devitt wrote in a note to clients.

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Looking Ahead

That said, long-term GMV growth could become increasingly decoupled from revenue growth, as customers engage with ads, merchants spend more on ads and emerging segments become larger contributors.

Unlike its western counterparts, Alibaba's user base is less focused on transactions and more concentrated on product discovery, social actions and recommendations. Since Alibaba's ads can drive off-platform and offline sales GMV and take rate do not fully capture merchant ROI (return on investment).

"Over the long-term revenue per MAU (monthly active users), particularly mobile, may become a more useful method to understand monetization opportunities," Devitt noted.

In the third quarter, the company generated $7.83 in mobile revenue per mobile MAU, up 90 percent from the same period last year.

A Note To Investors

Going forward, investors should closely monitor user monetization metrics to better understand consumer engagement and Alibaba's underlying value proposition to merchants. Alibaba's business should benefit from increasing mobile ad engagement and spend, international expansion, and a growing cloud business.

"We believe Alibaba has built a defensible, global commerce ecosystem that delivers physical and digital goods to consumers while providing branding and logistics services to merchants. The development of delivery in rural markets, category expansion and growth in services are key focus areas that could support long-term growth," Devitt said.

Devitt has a Buy rating and target price of $86 on Alibaba stock, which were up 1.04 percent at $67.20. Alibaba shares have declined 22 percent in the last one year, while the broader S&P 500 index was down 9 percent in the same period.