Morgan Stanley Estimates Alibaba's Addressable Market For Marketplace Sales

Morgan Stanley’s Julia Zhu estimated the total addressable market (TAM) for the retail marketplace of Alibaba Group Holding Ltd BABA reached $200 billion in 2015.

Zhu reiterated an Overweight rating on the company, with a price target of $132.

Retail Marketplace TAM

“For five selected consumer segments – apparel & footwear, F&B, consumer electronics, cosmetics, and personal care – we estimate channel cost at Rmb1.6 trillion (US$250 billion, i.e., ~25 percent of retail sales on average) for enterprises above designated size in 2015,” the analyst mentioned.

The TAM for Alibaba’s out of the channel cost is likely to have reached $200 billion in 2015, excluding last mile delivery expenses and online opex.

Related Link: Mutual Funds Ought To Own More Alibaba

Zhu noted that this compared to the company revenue of Rmb80 billion ($12 billion) from the China retail marketplace in FY2016 or 6 percent of the estimated TAM, as compared to the 18 percent online penetration for the five consumer segments.

Well Positioned

“More important, we believe Alibaba is in a good position not only to capture increasing online advertising budget, but also a larger share of channel cost,” the analyst went on to say, while estimating that pure advertising accounted for less than 20 percent of the channel cost.

The company’s value chain of digital marketing and digital commerce is likely to help Alibaba capture a larger percentage of channel spending.

The analyst estimated that the TAM would grow to $270 billion by 2020, driven by rising retail sales.

Assuming 20 percent efficiency gain and 20 percent penetration of channel cost, a TAM of $40 billion is implied for CY2020, above the estimate of the company’s marketplace revenue of $30 billion in FY2021.

Full ratings data available on Benzinga Pro.