Wal-Mart has long dominated as the world’s largest retailer, spanning 27 countries and strong dominance in North America. However, a competitor is right on Wal-Mart’s tail and soon could surpass as the largest retailer in the world. Wells Fargo analysts, Matt Nemer and Trisha Dill, believe that Chinese ecommerce company, Alibaba Group, could soon take the title away from Wal-Mart.
Growth left in Chinese ecommerce, as well as international expansion
Wells Fargo analysts estimate that Alibaba has not seen its full potential in China ecommerce sales, despite being the largest online retailer in the country. With growth still left in China and a growing emphasis on international expansion, the analysts suggest that “BABA will soon be the largest retailer in the world, with much better returns and margins than the current leader: Walmart.” However, Wells Fargo is concerned about the short to intermediate term for Alibaba, which was seen with full year 2016 EPS cut to $2.77 from $2.95. Additionally, analysts at Goldman upgraded shares of Alibaba yesterday from a “neutral” rating to a “buy” rating and additionally set a twelve month price target of $98, 14% above yesterday’s close.
Alibaba posted strong earnings on Thursday after hitting all time low Tuesday
It has been an emotional week for Alibaba and its investors. The start of the week brought about jitters and uncertainty around Thursday May 7th’s earnings release and accusations of fraud, sending shares to all time low of $77.77. However, shares of Alibaba rallied hard after better than expected earnings on Thursday. Alibaba reported adjusted earnings per share of $0.48 on revenue of $2.8 billion. Analysts were looking for earnings per share of $0.42 on revenue of $2.6 billion. Revenue results showed an increase of 45% year over year. Shares currently trade at $87.08, but are still down nearly -16% year to date.
Overall, Alibaba has a great long term outlook, according to Wells Fargo. The untapped growth in China, combined with strong international push is likely to give Alibaba the title of world’s largest retailer. However, the company must continue to strive to calm fraud fears stemming from allegations of false reviews and selling fake products. Alibaba’s earnings beat yesterday gave the bulls some much needed breather and confidence. While the short term outlook for Alibaba may be volatile, Wells Fargo analysts do see a bright future.