Most Of Wall Street Bullish On Alibaba
Shares of Alibaba Group Holding Ltd (NYSE: BABA) sold off on Wednesday, trading at a historical all-time low of $71.03, after the company reported first-quarter results in which sales fell short of expectations.
By Thursday, many Wall Street analysts defended the stock and reiterated bullish commentary and price targets. However, not all of Wall Street was bullish, as analysts at Atlantic Securities downgraded the stock while slashing its price target.
Cantor: Positive Long-Term Bias
Youssef Squali of Cantor Fitzgerald commented in a note that his long-term positive bias on Alibaba is unchanged given the company's "strong position" with China's "rapidly growing" ecommerce segment.
Squali noted that Alibaba's first quarter was a "mixed quarter of growth" with revenue falling short of expectations while earnings were ahead of expectations. However, excluding the suspension of lottery sales, and the transfer of the loan business to Anti Financial, the company would have shown revenue growth of 36 percent rather than the 28 percent growth it reported.
Squali continued that Alibaba will dominate in ecommerce for "years to come" although he did acknowledge that the near-term predictability of growth and margins has deteriorated due to the macro backdrop in China.
Squali also pointed out Alibaba has a strong potential for success outside of China even though international commerce retail revenue rose 40 percent year-over-year in the quarter to $81 million which marked a deceleration from the 53 percent growth in the prior quarter.
Shares remain Buy rated with a price target lowered to $95 from a previous $110.
Multiple Short-Term Headwinds Ahead, Positive Longer-Term
Cheng Cheng of Pacific Crest Securities commented in a note that Alibaba's first-quarter print was "disappointing" and near-term headwinds need to be addressed.
Cheng noted that Alibaba's position as an online partner for offline retailers to enable omni-channel strategies remains a "positive" to Tmall growth, customer experience and distribution. In addition, the company's commitment and progress in cloud computing is also a long-term positive for its revenue growth and ecosystem. Finally, mobile take-rates were "significantly better" than expected and are now 84 percent of PC take-rates.
On the other hand, Cheng pointed out that declining PC take-rates, slower GMV (gross merchandise volume) growth, currency devaluation, slowing active buyer growth as well as the company's "track record" of limited visibility are all near-term negatives that may "weigh on the stock."
Shares remain Overweight rated with a price target lowered to $94 from a previous $104.
Atlantic Securities: Downgrading On Near-Term Concerns
James Cordwell of Atlantic Securities downgraded shares of Alibaba to Neutral from Overweight with a price target slashed to $80 from a previous $103 as underlying GMV growth continues to slow while the "anticipated" offsetting monetization improvements have yet to materialize as ad revenue growth continues to lag GMV growth.
According to Cordwell, Tmall's trajectory compared "unfavorably" to JD.Com Inc(ADR) (NASDAQ: JD) which may suggest "competitive pressures" exists. At the same time, the analyst expected underlying monetization to improve as Tmall but the company's "lackluster" ad revenue growth creates further uncertainty as to when the take rate which declined 19 basis points year-over-year to 2.33 percent will start to inflect upwards.
Finally, Cordwell noted that Alibaba's revenue shortfall led to a 330 basis point year-over-year non-GAAP operating margin pressure, despite operating expenses growing at a slower pace than previous quarters. The company said it believes EBITDA margins for the core business can remain in the high 50s (versus a reported 52.3 percent), but the analyst suggested that ongoing investments in new initiatives may continue to weigh on margins.
Bottom line, Alibaba's near-term trends are likely to remain "lackluster" while the company also faces macro and currency related risks. As such, the analyst stated that he sees few catalysts that could drive a meaningful re-rating higher in the near-term.
Elsewhere On The Street
- Analysts at Brean Capital maintained a Buy rating with a price target lowered to $92 from a previous $97.
- Analysts at Oppenheimer maintained an Outperform rating with an unchanged $105 price target.
- Analysts at Axiom Capital maintained a Buy rating with a price target lowered to $90 from a previous $110.
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