Macquarie Trims Alibaba Profit Expectations: Here's Why

• Alibaba Group Holding Ltd BABA shared have declined 32.4 percent over the past one year, almost touching their 52 week low on September 28, 2015, at $57.39.
• Macquarie’s Wendy Huang has maintained a Neutral rating and price target of $80 on the company.
• Although the current stock valuation and 14 percent upside potential offer a buying opportunity, Huang expressed concern regarding the increasing competition being faced by the company.

Analyst Wendy Huang mentioned that Alibaba is scheduled to report its 3QFY16 results on January 28. The revenue growth estimate has been raised from 20 percent to 22 percent year on year for the quarter, to reflect the robust promotions in November and December.

However, the earnings estimate for 3QFY16 has been lowered by 3 percent due to larger than anticipated equity loss.

Alibaba owns equity stake in multiple entities and the company had stated that “continuing heavy investment in these business and year-end also tend to incur impairment loss.” The equity loss estimate has accordingly been raised to Rmb805 million.

The adjusted EBITDA margin is expected to decline from 53 percent in FY15 to 49 percent in FY16, in-line with the guidance. Tmall’s GMV is expected to have continued to expand year on year at a rate thrice that of Taobao during 3QFY16.

“Looking into 2016, we expect the company to continue to focus on Mobile, globalization, logistics and Omni channel. We expect the mobile take rate to help resume yoy growth in blended rate in 4QFY16.,” Huang stated.

Huang also mentioned that Alibaba’s O2O initiative was still in its early stages with the company having invested Rmb6 billion, along with Ant Financial, in September 2015, to rebuild the Koubei platform that connects Alipay, the Taobao app and mobile.