KeyBanc Stays Bullish On Alibaba After 2019 Guidance Cut

Chinese e-commerce company Alibaba Group Holding Ltd. BABA reported second-quarter earnings Friday with updated revenue guidance for the year.

The Analyst

KeyBanc Capital Markets analyst Hans Chung maintained an Overweight rating on Alibaba and lowered the price target from $215 to $203.

The Thesis

Alibaba's decision to lower 2019 guidance revolves around macroeconomic uncertainty and the near-term impact from the transition to recommendation feeds, Chung said in a Sunday note. (See his track record here.) 

“We believe these two factors have concerned investors, while the model could now be largely derisked," the analyst said. 

Chung said he anticipates incremental monetization from the revamped Taobao in the long run.

“Though there could be some cannibalization to search traffic, we believe recommendation feeds could drive higher user engagement and better conversions and in turn result in more transaction sales, which will further drive more ad spending at merchants.”

KeyBanc remains bullish on Alibaba for three key reasons, Chung said: 

• The monetization of its core e-commerce segment, which is expected to improve through technology advancements.
• The strong growth of AliCloud due to its leverage and position in the Chinese market.
• Growth-driving opportunities in rural e-commerce.

Price Action

Alibaba shares were down 0.55 percent at $146.78 at the time of publication Monday. 

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Photo courtesy of Alibaba.