KeyBanc Likes Alibaba's Alimama, Sees Upside Potential

Alibaba Group Holding Ltd BABA is up 37 percent in 2019, but one analyst still claims upside potential.

The Rating

KeyBanc Capital Markets analyst Hans Chung maintained an Overweight rating on the stock but raised his price target from $210 to $240.

The Thesis

Chung expects Alibaba to remain a “leader and pioneer” in e-commerce, particularly as it develops Alimama. (See the analyst's track record here.) 

The platform recently opened registration for merchants to test a “Super Recommendation” marketing feed, which was previously accessible by invite only. KeyBanc interprets the expansion as a sign of positive ROI and forecasts an official launch by the second half of 2020.

“We expect feed monetization to be meaningfully incremental to the model as recommendation feed traffic has been larger than search,” Chung wrote in a note. He expects revenue in the third quarter of 2020.

The analyst also anticipates margin improvement as Freshippo stores ramp and mature through 2020. “We estimate operating margin of Freshippo to improve from a low-teens percentage loss in F2Q19 to negative low single digits by F4Q20,” he wrote.

Price Action

At time of publication, Alibaba shares traded down 2.9 percent at a rate of $182.80. The stock has been under pressure this week amid trade war concerns.

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Photo courtesy of Alibaba.