Alibaba Could 'Redefine The Future Of Commerce,' Says Jefferies Analyst

How big can China's Alibaba Group Holding Ltd BABA's business become? According to Wall Street's newest bull, it can "redefine the future of commerce."

The Analyst

Jefferies' Karen Chan initiated coverage of Alibaba with a Buy rating and $240 price target.

The Thesis

Alibaba managed to grow its gross merchandise value from $100 billion six years ago to $500 billion today, and did so while "riding on the secular growth of China's e-commerce," Chan said in the initiation note. (See the analyst's track record here.) 

Alibaba is able to thrive given its large traffic size and big data capability, both of which position the company to "explore a deeper form of monetization," she said. 

With 15 percent of China's retail space being online, Alibaba is looking to "digitalize the remaining 85 percent," the analyst said. It would be reasonable to assume that Alibaba will achieve its goal of reaching $1 trillion in GMV by 2020 and boast 2 billion customers across the world by 2036.

This outlook implies a revenue compounded annual growth rate of 34 percent through fiscal 2021 that's driven by the following factors, Chan said:  

• 22-percent GMV growth. 
• Improving monetization on a consistent basis. 
• New revenue streams from expansion into new retail categories. 
• High-growth opportunities in cloud and e-commerce opportunities across all of southeast Asia.

Finally, the analyst's $240 price target is based on a sum-of-the-parts valuation model broken down as follows:

• Core e-commerce valued at $531 billion. 
• A $26-billion cloud valuation. 
• The Ant Financial stake being worth $25 billion. 
• A $10-billion valuation for Alibaba's Cainiao stake.
• Other/investments worth $26 billion.

Price Action

Alibaba closed Tuesday down 2.87 percent at $182.40. 

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Alibaba Executive Chairman Jack Ma speaks at the Gateway '17 conference in Detroit on June 21, 2017. Photo by Dustin Blitchok.