JPMorgan Shaves Alibaba's Price Target, Still Overweight On The Stock

JPMorgan’s Vivian Hao maintained an Overweight rating for Alibaba Group Holding Ltd BABA, while reducing the price target from $90 to $88.

Alibaba achieved total Rmb3tn GMV on March 21, broadly in-line with JPMorgan estimates for 4QFY16 China retail GMV of Rmb721bn, implying 20 percent y/y growth. Given limited visibility into an improvement in China’s macro environment, expectation is for continued pressure on Alibaba’s GMV re-acceleration.

Rejuvenation Opportunity At Taobao

“Nonetheless, our interviews with merchants of selected categories on Taobao (eg. KoLs’ stores), suggest good reception of new ad inventories launched in Dec qtr. Traffic quality and sales leads conversion (esp. on mobile) showed improvement,” analyst Vivian Hao wrote.

Growing KoL economy and the evolution of the C2B model could result in a “gentrification of BABA's platform,” especially the Taobao marketplace, with certain top KoL merchants “growing from strength to strength,” Hao mentioned.

Margin Pressure From Non-EC Segments

The analyst expects non-EC segments to impact the company’s margins. Subsidy on Koubei may be increased “through 1) equity pick-up line below PBT, and 2) other income which incorporates 37.5% PBT of Ant.”

Koubei subsidy is expected to adversely impact non-GAAP NP by 3 percent in FY17. Moreover, an estimated Youku consolidation in 1QFY17 is likely to expand the company’s topline by 7 percent, “while wiping out JPMe 3.4% EBITDA margin to 48.9% in FY17E,” the JPMorgan report added.