Alibaba's Core Profitability Remains Strong, Near-Term Headwinds Notwithstanding


27% profit every 20 days?

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Previewing the fiscal second-quarter results of Alibaba Group Holding Ltd

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(NYSE: BABA), SunTrust noted that core profitability remains strong, despite the near-term investments headwinds. The firm sees strong investor sentiment and business momentum, based on the company's analyst day takeaways and strong June quarterly results.

Revenue Growth Vs. GMV Growth

Lead analysts Robert "Bob" Peck and Rodney Hull believe Alibaba's commerce/media model is providing greater stability and power, as customer and merchant average revenue per user increases.

With new segments of ad dollars coming to the platform and greenfield content beginning to be monetized, the company is seeing revenue divergence. The analysts thus noted that revenue growth is outpacing the growth of gross merchandise volumes, and this not coming at the behest of increased ad loads or rising cost per clicks is encouraging.

Margins Pressured But Strong


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SunTrust commended the above-consensus commerce margins of 61 percent for the June quarter. However, the firm sees investment headwinds due to spending in supermarket, rural and Lazada. Additionally, the firm expects continued weakness in Digital margins. Further, the firm noted that Cloud is approaching break-even.

Catalysts

SunTrust sees continued AliCloud growth and the potential IPO of Ant Financial in late 2017 as potential catalysts. As Alibaba focuses on growth and adding competitive advantages, the firm feels it is unlikely to pursue Yahoo! Inc.(NASDAQ: YHOO) at this time.

2Q, FY17 Estimates

SunTrust estimates second-quarter earnings per share of $0.67, EBITDA of $2.2 billion and revenues of $5 billion. For 2017, the firm estimates earnings per share, EBITDA and revenues of $3.13, $10.2 billion and $22.5 billion, respectively.

As such, SunTrust reiterated its Buy rating on the shares of the company, while it upped its 2017 price target to $125 from $110.

At the time of writing, shares of Alibaba were down 2.71 percent at $102.38.

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27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.


Posted In: Analyst ColorEarningsLong IdeasNewsPrice TargetPreviewsReiterationAnalyst RatingsMoversTechTrading IdeasAliCloudBob Peckcloudcloud computingcloud technologyRobert PeckRodney HullSunTrust