For Alibaba, Deutsche Bank Sees Further Upside

Deutsche Bank analyst Alan Hellawell reiterated a Buy rating for Alibaba Group Holding Ltd BABA following the company’s Investor Day and raised his price target from $151 to $161.

The analyst also raised revenue estimates by high-single-digit percentages through 2020 in response to stronger-than-expected guidance of 45–49 percent growth in fiscal 2018.

Hellawell took particular note of developments in three areas: marketing services, cloud services and entertainment.

Marketing Services

Alibaba management cited surprisingly large growth to improvements in their marketing algorithms that even they didn’t expect to perform so strongly.

Lazada in particular is set to grow approximately 200 percent year over year.

Despite the success in broadening user engagement, the company doubts there will be as much room for surprise in 2018.

Cloud Services

To keep growth going, the company is looking towards rapidly growing its AliCloud user base.

Bain & Company’s forecast that the Chinese cloud market to grow to $20 billion by 2020.

While AliCloud has been focused on Chinese internet companies for the past few years, the company is now looking toward getting more traditional businesses on board.

Specifically, Alibaba plans to target manufacturing companies, of which only 1 percent utilize cloud services.

Hellawell noted that management is focused more on growing its user base and market share than profitability at this time.

Entertainment

The company is also interested in growing its digital media and entertainment group. Subsidiary Youku has seen quick paid subscription growth in the last year.

Similar to AliCloud, management is primarily focused on growing its market share, confident that subscriptions will be more valuable the advertising in the future.

If growth continues, it will likely reinvest the money to continue growth.

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