Alibaba Has 63% Upside And Room For Margin Expansion, Bullish Analyst Says

Alibaba Has 63% Upside And Room For Margin Expansion, Bullish Analyst Says
  • Mizuho analyst James Lee reiterated a Buy on Alibaba Group Holding Limited BABA with a $160 price target.
  • The re-rating followed an investor call with Alibaba leaving him confident about the margin expansion story.
  • He expects September quarter GMV growth to improve from June to 5% Y/Y and positive change in December as demand for discretionary products pick up during Singles' Day promotions with the reopening of the supply chain. 
  • Lee anticipates the cancellation rate to drop in the back half of CY22 as shipping capacity becomes normalized, resulting in increased profitability.
  • He expects lower-tier market investments to moderate losses, offering ample room for margin expansion, which could potentially add 10 points to margin long-term.
  • The analyst said the management should focus on EV and financial services, which have the most significant demand for data. 
  • BABA appears to have a competitive advantage in financials due to its experience supporting Alipay and Ant Group. 
  • In EV, the company has an investment stake in XPeng Inc XPEV
  • For the public sector, security is essential, so BABA offers private cloud solutions. 
  • Lee expects the TAM for these projects to be large and well-funded.
  • Price Action: BABA shares traded lower by 0.47% at $97.53 on the last check Monday.
  • Photo via Wikimedia Commons

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