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Online Video Remains Primary Influencing Factor In Alibaba Estimates For Next 6 Quarters

Online Video Remains Primary Influencing Factor In Alibaba Estimates For Next 6 Quarters

While Alibaba Group Holding Ltd (NYSE: BABA)'s core commerce business is likely to remain steady and online video could continue to be the main “influencing factor” in the estimates for the next six quarters, Bernstein’s Bhavtosh Vajpayee said in a report. He added, however, that estimates may not have factored in video yet.

While maintaining an Outperform rating on Alibaba, Vajpayee raised the price target from $117 to $130.

Taking Video Into Consideration

With Baidu Inc (ADR) (NASDAQ: BIDU) guiding to a doubling of content costs into 2017 and taking into account the latest margin report by Tencent — a leading provider of internet value added services in China — there seems to be a “gradual assimilation of video costs into consensus forecasts,” Vajpayee observed. He added, however, that the process was still in its “early stages.”

“Our gap vs the street on GAAP operating margins in FY2018E has shrunk by about 30bps in the last two months, but we still remain 160bps below consensus,” the analyst pointed out.

Excluding the impact of video, Alibaba’s prospects continue to be bright, with 30 percent revenue growth expected in FY 2018. “A gradual narrowing of losses in video will also set in next year as revenue growth catches up with costs,” Vajpayee wrote.

Alibaba could gain share in the cloud business for some more quarters, with its enterprise cloud platform being “several years ahead” of peers. “Indeed, the reduction of losses in video as well as the emergence of profits in the cloud business poses a significant margin upside once the current investment phase is past,” the analyst mentioned.

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