Alibaba Group Holding Ltd Coverage Initiated With Buy Rating

Alibaba Group Holding Ltd (NYSE:BABA) shares have continued to trade in the $80s for some time, but analysts at UBS think that trend will break by this time next year. They have initiated coverage with a Buy rating and a 12-month price target of $100 a share.

Alibaba’s prospects

In their report dated Oct. 14, 2014, UBS analysts Erica Poon Werkun, Eric Sheridan and Angela Xu said that even though Alibaba shares have climbed by 25% since the company’s initial public offering last month, they’re still positive on the company’s prospects. They think the Chinese online retailer is “uniquely positioned,” as it has exposure not only to ecommerce but also advertising.

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They add that Alibaba Group’s growth is higher than that of the rest of the industry and seems sustainable. Also the company’s EBITDA margins are higher than the average. The analysts do note a negative element, however, pointing to slowing revenue growth, although they say it still is “impressive.”

Alibaba looks well-positioned

The UBS team thinks Alibaba is one of the best-positioned companies within the global internet services space. The Chinese company has exposure to mobile, which makes up 33% of its transactions, intent to consume, local, and social through its investments in Weibo and TangoMe.

However, the analysts say Alibaba might expand its focus into more internet services, both inside China and around the globe. They note that the company would have to sacrifice margins and cash returns, however, and that there wouldn’t be much visibility on whether such efforts would be successful.

Gazing into Alibaba’s future

Over the next couple of years, the UBS team estimates a compound annual revenue growth rate of 37%. They believe Alibaba will keep its 80% share of China’s ecommerce market and improve its mobile monetization. In addition, they expect the company to expand its service offerings and geographies.

For the same time frame, they’re estimating a compound annual EBITDA growth rate of 32%. That reflects the company’s marketing and product development investments.