Alibaba Group Holding Ltd. (NYSE: BABA) reported results last Thursday that included higher-than-expected revenues and lower-than-expected profits. A revenue jump of nearly 40% was the primary driver for a stock price boost of around 4%. Shares still trade down more than 2.5% for the year to date, even though they’ve gained nearly 30% since mid-February.
The good news for Alibaba and its investors is that the company’s cut of each sale (the so-called take rate) rose from 2.17% a year ago to 2.47% in the first quarter. That’s important because gross merchandise value growth has slowed from a growth rate of 43% in the same period for the past two years to 24% in the past quarter.
The company’s profits are expected to be squeezed by investments in Ant Financial and recent acquisitions. Barron’s cited a Morgan Stanley analyst who thinks that fiscal year 2017 earnings could be lowered by 11% to pay for these investments. That’s no reason to dump the stock though; Morgan Stanley rates the stock as Overweight with a price target of $112.30 a share.
Merrill Lynch offered this rationale for reiterating its Buy rating and boosting the price target by $3 a share to $99:
We expect Alibaba to remain the leading eCommerce co[mpany] by transaction value. Its leadership position enables it to benefit from industry growth and economies of scale. Alibaba has industry leading investment in R&D to facilitate cross-selling and targeted advertising. Hence there should be room for marketing revenue to grow. It also runs industry leading B2B and cloud computing, and has option value in Ant Financials (not part of Alibaba Group). Lower-margin media biz has limited earning impact.
24/7 Wall St.Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
