Susquehanna Lowers Alibaba Estimates, Maintains It's An E-Commerce 'Killer'

Susquehanna slightly reduced its estimates for Alibaba Group Holding Ltd BABA, citing the consolidation of the food delivery service Ele.me and higher costs from Youku, but the firm remains as bullish on the Chinese e-commerce platform as ever.

The Analyst

Susquehanna analyst Shyam Patil reiterated a Positive rating on Alibaba with a $305 price target.

The Thesis

Alibaba’s aggressive investments in its various businesses are expected to continue and weigh on consolidated margins for the foreseeable future, Patil said in a Friday note. (See the analyst's track record here.) 

Investors will be looking for an update on Ele.me and Youku’s spending when the company reports earnings next month, the analyst said. 

The ele.me consolidation occurred midway through the quarter, later than many on Wall Street —who were hoping to see a full quarter on the books — expected, according to Susquehanna. 

Patil expects Alibaba to continue pouring money into the business, which has “clear synergies” with Jack Ma’s “New Retail” vision.

On the cost side, Youku’s exclusive FIFA World Cup streaming rights will be a drag on earnings in the near term, Patil said. The deal should prove to be a tailwind in future quarters, helping Youku bring in new subscribers, the analyst said. 

Patil forecast 40-percent revenue growth for the streaming platform in 2018 against a 34-percent consensus estimate. 

“We continue to view BABA as the China e-commerce category killer with several years of strong growth ahead,” Patil said. 

Price Action

Alibaba shares were trading up 1.21 percent at the time of publication Friday morning. 

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