Alibaba faces several issues like dealing with counterfeit products, but those should be temporary and a number of catalysts are on the horizon. As the Chinese online retailer deals with these near-term challenges, Barclays analysts will be watching for signs that its revenue and earnings growth will keep slowing down.
Still positive on Alibaba
In a report dated March 16, analyst Alicia Yap and her team said they cut their revenue estimates a bit due to impacts from some of the recent developments, although they remain positive on the company. Among the challenges is Alibaba’s cooperation with the State Administration for Industry and Commerce (SAIC) to fix the problem of counterfeit items for sale on its platforms.
The Chinese online retailer also recently announced changes to management at Tmall and new policies for merchants. Also at the beginning of the month, Alibaba suspended online lottery sales. And finally, the company will see lower revenue from interest since it finished the small loan restructuring plan for Ant Financial.
The Barclays team trimmed their estimate for Alibaba’s 2015 fiscal year revenue by 0.6%, their 2016 estimate by 2.6% and their 2017 estimate by 1.8%. They also reduced their estimates for non-GAAP EPADS by 2.5% for 2015, 4.6% for 2016 and 2.4% for 2017.
As a result of these lower estimates, they trimmed their price target from $107 to $100 per share, although they kept their Overweight rating on the stock.
Tmall changes are good in the long term
Overall, Yap and her team think Alibaba is moving in the right direction with the changes it made at Tmall. The SAIC has blasted the company for all the counterfeit items that are for sale on its online platforms, particularly at Tmall.
The new merchant policy demonstrates Alibaba’s commitment to improve controls on the platform while also improving the shopping experience by raising the entry requirements for merchants. For now, it’s expected that the result will be a reduction in merchant number growth and the number of item available for purchase on Tmall.
Alibaba also reportedly reassigned the former president of its Taobao online property to Tmall, which Barclays analysts think will result in the management of all three of the company’s online properties becoming more centralized. They also think it will result in operational efficiencies.
Lockup on Alibaba shares expires
Starting tomorrow, an additionally 337 million insider-owned Alibaba shares will flood the market by becoming available for trade due to the expiration of the lockup period. It’s expected that the expiration will weigh on the company’s stock for now.
Another 100 million Alibaba shares will become available for trade in April after the company releases the earnings results from its March quarter.
As of this writing, shares of Alibaba were up 0.27% to $84.23 per share.