Alibaba Group Holding Ltd Coverage Initiated With ‘Overweight’

Alibaba Group Holding Ltd (NYSE:BABA) continues to get positive ratings from analysts at various firms. Barclays is the latest firm to begin covering the Chinese online retailer. The firm’s analysts say they see upside potential for Alibaba’s monetization rate and a couple of other possible upside catalysts.

Upside seen for monetization

In a report dated Oct. 23, 2014, analyst Alicia Yap initiated coverage of Alibaba Group with an Overweight rating and $107 per share price target. She noted that Alibaba has a combined 80% market share in both consumer to consumer and business to consumer.

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She thinks revenues in the company’s Chinese retail marketplaces could see monetization upside if it can improve the take rate on its TMall online property. The analyst also thinks that Alibaba should push more deals through Juhuasuan and look to increase advertisers’ return on investment for their ad campaigns.

Yap believes Alibaba’s mobile monetization rate will rise to 1.94% in the 2016 fiscal year and 2.47% the following year. She estimates that the company’s mobile gross merchandise volume will hit 47% of total volume in 2016 and 52% the following year. She estimates that mobile commerce revenue will make up 27% of Alibaba’s total revenues in 2016 and 36% of them in 2017.

Opportunities in Alipay

The Barclays analyst also said Alibaba has a “significant growth opportunity” in Alipay, which brings it into online payments and internet banking. Yap believes “the potential 33% stake in Alipay / Ant Financial” may end up being an upside catalyst for her valuation of Alibaba.

Her preliminary valuation for Alipay, the small loans and Tianhong asset management, not counting the private bank, is about $53 billion.

Challenges for Alibaba

Of course every company faces challenges, and Alibaba is no different in this respect. In particular, Yap thinks transitioning revenues from the company’s Taobao online property over to mobile could be a challenge. In addition, she notes that specialized retailers could eat into Alibaba’s market share and that the law of large numbers means that the company’s growth is slowing.

She also suggests that the integrity of the merchants who sell on Alibaba may be questionable, as are the quality of the products they sell on the company’s online marketplaces. She also sees risks in integrating Alibaba’s acquisitions and the possibility that the Chinese and global economies will slow down.