Goldman Sachs Sees 30% Upside For Alibaba Group Holding Ltd Based On Three Key Drivers


Alibaba sits on Goldman Sachs’ Conviction Buy list this year based on three key drivers, according to Barron’s. Based on a sum-of-the-parts analysis, Goldman values the Chinese firm at $135 per share, suggesting upside of more than 30%.

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Why is Goldman bullish on Alibaba?

The first driver is that the e-commerce giant can deploy Big Data to study its customers and offer a more targeted and integrated shopping experience, according to analyst Piyush Mubayi. Brands use Big Data to understand their customers, and Alibaba’s largely consumer-centric approach helps sellers with consumer acquisition and retention and fuels operational efficiency.

Alibaba derives most of the information about its customers from its ten-year database, which is based on Unified ID. The company takes note of about 100 data points for each of its consumers as they engage at its sites Tmall, Alipay, Weibo, Youku and Taobao, the analyst notes.

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Next, by partnering with the department store chain Intime and Bailian, which operates shopping malls, supermarkets, and convenience stores across China, the Chinese company aims to integrate retailers’ expensive double-inventory system. Goldman Sachs concluded through its sensitivity analysis that if the Chinese company succeeds in capturing 10% of offline retail GMV at the same rate as current retail, “earning half of the core commerce EBIT margin, our FY19E EPS could be 28% higher than our base case estimate.”

The third driver is the Cloud, which, according to the analyst, will grow fastest at Alibaba, contributing to its overall growth in the double-digits.

“The segment’s profit drag should reverse in the next two years, improving to 30% in four years,” says Mubayi.

First step into India’s marketplace

Meanwhile, in India, the Chinese company is working hard to increase its footprint. Recently, the company launched Paytm Mall, a consumer shopping app, to compete with rival Flipkart and Amazon there. Paytm Mall is an Android app based on the TMall, China’s leading e-commerce platform.

India’s e-commerce industry is witnessing tough times. In 2016, businesses such as Askme were shut down, whereas companies such as Flipkart and Snapdeal had to part ways with employees on a massive level to focus on profitability, according to Business Standard. Currently, the online shopping market in India is dominated by only two leaders: Amazon and Flipkart.

On Friday, Alibaba shares closed up 0.48% at $102.95. Year to date, the stock is up more than 17%, while in the last year, it is up almost 54%.

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