Alibaba Group Holding Ltd (NYSE:BABA) could be serving more than half the Chinese population in the next decade, according to Jefferies analysts. They view the whole ecommerce industry in a positive light and see Alibaba as especially promising.
Alibaba to see rapid growth
In a report dated Oct. 27, 2014, analyst Cynthia Meng and the rest of the team at Jefferies point out that Alibaba holds 80% of the gross merchandise volume market share in China even though it sells to less than a quarter of the population. As a result, they initiated coverage of the company with a Buy rating and $118 per share price target, saying that the company will probably be selling more than half of the Chinese population in ten years.
The Jefferies team said the changing demographics support their view that ecommerce will grow over the next decade. For example, internet users are moving toward the 30+ age group. They also noted that there’s a structural shift from traditional retail to online shopping and that the proliferation of affordable smart devices means that mobile shopping will continue growing.
TMall, mobile help Alibaba grow
The analysts said a mix shift toward TMall and also growth in mobile monetization will drive Alibaba’s growth to push the percentage of the Chinese population the company serves from less than 25% to more than 50%.
They’re estimating a compound annual growth rate of 36% for Alibaba’s revenue between the 2014 and 2017 fiscal years. They think growth in commission revenues from TMall will be the main driver. In addition, they note that mobile gross merchandise volume was 32.8% of Alibaba’s total volume in the first fiscal quarter of 2015, growing by 21 percentage points year over year. The Jefferies team believes that the mobile monetization rate will narrow the gap with the PC monetization rate.
International upside for Alibaba
One of the reasons they see TMall as being so important for Alibaba is because of the “growing appetite for foreign brands among Chinese consumers.” The TMall Global online property reduces the cost, delivery time and language barriers in international online shopping. They estimate a 5% to 12% upside to their 2016 fiscal year revenue estimate for Alibaba based on international shopping through TMall Global.
