2 Of Wall Street's Best Weigh In On Alibaba After Fake Goods Accusations

E-commerce giant Alibaba Group Holding Ltd BABA reported earnings for the final quarter of 2014 on Thursday, January 29. The company’s stock fell more than 10 percent in trading on Thursday as it missed analysts’ revenue estimates and is currently facing accusations of trading fake goods.

Alibaba had a 40 percent increase in revenue, bringing in a total of $4.22 billion. However, the company significantly missed analysts’ estimates of $4.45 billion. The e-commerce giant posted earnings of $0.81 per share on a non-GAAP basis, marking a 13 percent increase from the same quarter a year prior.

The company saw an increase of 49 percent in gross merchandise volume (GMV) reaching $127 billion; 42 percent of which constituted mobile devices. The company also saw a rise in mobile monthly active users, almost doubling to 265 million.

Jonathan Lu, chief executive officer of Alibaba Group, remained optimistic, stating:

“We delivered a strong quarter with significant growth across our key operating metrics…Gross merchandise volume across our China retail marketplaces grew 49 percent year on year, and our annual active buyers increased to 334 million in 2014, an increase of 45 percent year on year. Our unrivaled leadership and momentum in mobile continued — we added 48 million active users sequentially and delivered over US$1 billion in mobile revenue during the quarter. Our business continues to perform well, and our results reflect the strength of our ecosystem and the strong foundation we have for sustainable growth.”

In addition to missing analysts’ revenue estimates, Alibaba was forced to defend itself the day after they released their Q3FY15 earnings against Chinese authorities. The authorities claimed the company has not taken action against the sale of fake goods, bribery and other illegal activities.

In a report released on Wednesday, January 28, China’s state administration of industry and commerce said it had uncovered “the long-term existence of illegal problems regarding the management of transaction activity and other issues."

In a conference call on Thursday, executive vice-chairman Joseph Tsai called the allegations “so unfair” and claimed that the company has spent over $160 million over the past 2 years in an effort to take down fake goods and fight against illegal activity. The report was taken down as a result.

According to SmarterAnalyst, Cantor Fitzgerald analyst Youssef Squali weighed in on Alibaba on January 29 following the release of the company’s Q3FY 15 earnings report, reiterating a Buy on the stock with a slashed price target of $100.

The analyst noted, “While we expect Alibaba to continue to dominate the rapidly growing Chinese ecommerce market for years to come, we believe that nearterm predictability of growth and margins has deteriorated given the company’s continued transition to mobile and changes to its user experience. This is amplified by recent tensions with SAIC, which may have a negative short-term impact as well. We continue to like the stock longer-term, however, given BABA’s position and opportunity in and outside of China, and strong balance sheet.”

Youssef Squali has an overall success rate of 68 percent recommending stocks and a +24.9 percent average return per recommendation.

Separately, Goldman Sachs analyst Piyush Mubayi maintained a Neutral rating on Alibaba and cut his price target to $98 following the company’s Q3FY15 earnings report.

The analyst focused on Alibaba’s numbers coming in below estimates and listed 2 reasons for his Neutral ratings: “(a) Higher proportion of mobile transactions, reaching 42 percent of GMV, vs 36 percent in 2Q. Mobile monetization rate remained at discount to PC (1.96 percent versus 3.23 percent). (b) PC pay-for-performance monetization rate fell as mgmt revamped search algorithm to distribute traffic to long-tail keywords and organic results.”

He added: “Both developments have enhanced merchants’ ROI, in our view, suggesting the ecosystem’s long-term healthy expansion, but impact on revenues could linger.”

Piyush Mubayi has an overall success rate of 50 percent recommending stocks and a +2.9 percent average return per recommendation.

On average, the top analyst recommendation for Alibaba on TipRanks is Strong Buy.