JPMorgan Is Buying Alibaba, Calls This 'Elephant In The Room'

J.P. Morgan's Vivian Hao has initiated coverage of

with an Overweight rating and price target of $90. Hao believes that the stock is oversold due to concerns regarding the macro setbacks in China and the subsequent GMV deceleration. "In our view, the market has not given credit to BABA's robust monetization improvement on the back of differentiated positioning of Tmall/Taobao, overall healthier ecosystem around a user-centric culture, and accelerated business diversification, such as cloud computing," the analyst stated. Hao expects further decoupling of revenue growth and GMV with total revenue, EBITDA and free cash flow outgrowing GMV during FY17-19. "Meanwhile, we estimate the mobile take rate (TR) to surpass PC by FY1Q17E and blended TR to inflect by FY17E," the J.P. Morgan report said. Hao also expects Alibaba to succeed across numerous emerging segments, including internet finance and cloud services. Although GMV growth might slow down in the near term, the analyst expects TR improvement to persist, driven by "1) enriched marketing tool offerings; 2) improved targeting capability and user engagement, and 3) favorable category expansion." In addition, with the structural shift from C2C to B2C, the company has enhanced the value proposition of Taobao and Tmall. Hao expects Tmall to continue to outperform Taobao at a CAGR of 16 percent during FY17-19, which would provide a tailwind to Alibaba's overall monetization.