Alibaba Group Holding Ltd Coverage Initiated With ‘Buy’ Rating

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Alibaba Group Holding Ltd Coverage Initiated With ‘Buy’ Rating
By Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Alibaba Group continues to expand into more and more industries, building up an ecosystem few can rival. It is because of this ecosystem that many analysts are looking beyond the Chinese company’s core e-commerce business and seeing the powerhouse it may be in the process of becoming.

Alibaba reshapes Chinese consumer behavior

Analysts at Daiwa Capital Markets initiated coverage of Alibaba Group with a Buy rating and $130 per share price target in a report dated Jan. 9, 2015. John Choi and Alex Liu said Alibaba has been changing the way Chinese consumers behave over the last ten years. They note that the company’s ecosystem not only offers new services for users but also bases them on its own e-commerce platform, thus creating more opportunities for growth.

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They say a growing number of users and higher take rates are driving Alibaba’s growth. Other key drivers include growth at the company’s online Tmall property and higher cross-border transactions, which should boost the Chinese online retailer’s gross merchandise volume.

Alibaba’s many initiatives

The Daiwa analysts see two of Alibaba’s initiatives as being the most important ones. In addition to cross-border transactions, they say the company’s China Smart Logistics joint venture is important. Together, they think the two initiatives could change China’s e-commerce landscape.

They point out that the key driver for earnings growth is gross merchandise volume growth and that mobile penetration is important. They expect mobile transactions to surpass the 50% mark for Alibaba’s retail gross merchandise volume in China by the 2017 fiscal year.

Possible share price catalysts for Alibaba

In addition to these growth drivers, they also point to Alipay as being an important building block for the company’s success, although the payments services is still in its early days. They say investors will also likely be pleased by new strategic investments that result in synergies for the company.

They expect Alibaba to post better-than-expected earnings results for the third fiscal quarter of 2015. That earnings report is scheduled to be released in February or March. Of course if Alibaba does beat earnings expectations, it would probably push the Chinese company’s shares higher.

Shares of Alibaba Group slipped as much as 1.38% during regular trading hours today.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at [email protected]
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