Wall Street Weighs In On Alibaba's Impressive User Growth, Investing In The Future

On Thursday, Alibaba Group Holding Ltd - ADR BABA reported fiscal first-quarter earnings and revenue beats as the Chinese economy continues to recover from the COVID-19 outbreak.

Alibaba reported adjusted EPS of 14.82 yuan ($2.14) on revenue of 153.75 billion yuan ($21.76 billion). Both numbers topped analyst expectations of $2 and $21.3 billion, respectively. Revenue for the quarter was up 34% from a year ago.

Alibaba’s cloud services revenue growth was particularly strong, jumping 59% to $1.75 billion.

Impressive User Growth: Needham analyst Vincent Yu said Alibaba’s 28 million new mobile monthly active users added in the quarter exceeded his expectations by about 5 million users.

“We particularly like that Taobao Deals, which focuses on serving value-conscious consumers, has reached an MAU of 40 million,” Yu wrote in a note.

KeyBanc analyst Hans Chung said user growth and new monetization streaming, such as feed and live streaming, should help Alibaba continue to fend off new e-commerce competition in China.

“BABA's breadth and depth in consumer economy, cross-platform synergies, and potential in Alicloud and Ant Financial could prove to be MT/LT drivers to the stock, in our view,” Chung wrote.

Investing In The Future: Bank of America analyst Eddie Leung said Alibaba is doing a commendable job of investing in growth initiatives but also managing costs.

“GMV of TMall physical products accelerated to 27% YoY from 10% in 1Q20 due to pent-up demand, more aggressive promotion and additional features for customized user experience such as value deals, influencer marketing and live streaming,” Leung wrote.

Raymond James analyst Aaron Kessler said Alibaba’s core growth has fully recovered from the downturn and the stock is one of his top picks in the tech space.

“Alibaba remains our top Internet mega-cap pick given: we expect continued solid China ecommerce growth with Alibaba as the biggest winner (Alibaba captured about one-sixth of China total retail sales in FY20, crossing $1T in GMV); 2) we believe take rate upside is underappreciated (<4% in FY20 with potential for the mid/high-single digits); we believe valuation is attractive at ~18x 2021 marketplace EPS (including SBC) on our base case scenario vs. ~20%+ expected long-term growth,” Kessler wrote.

BABA Ratings And Price Targets:

• Raymond James has a Strong Buy rating and $320 target.
• Needham has a Buy rating and $275 target.
• KeyBanc has an Overweight rating and $295 target.
• Bank of America has a Buy rating and $317 target.

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