Alibaba Group Holding Ltd Earnings Preview: PT Upped For Monetization

Alibaba Group Holding Ltd Earnings Preview: PT Upped For Monetization
By Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Alibaba is scheduled to release its next earnings report on Thursday before opening bell, and analysts are generally expecting the company to benefit from growth in monetization rates. For the third quarter of fiscal 2016, SunTrust Robinson Humphrey analysts are expecting $5.3 billion in revenue, earnings of 98 cents per share and $3 billion in EBITDA.

What to expect in Alibaba’s earnings report

Robert Peck said in his report dated Jan. 26 that he projects a 28% year over year increase in gross merchandise volume with mobile making up about 65% of it. He’s looking for a 29% increase in revenue and a blended take rate of about 2.74% with the mobile take rate at 2.65% and the PC take rate at 2.9%, which would be the first increase in four quarters. He’s expecting an EBITDA margin of about 58% on the back of strong core margins and investments.

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For Tmall, he’s projecting a 48% increase in gross merchandise volume, while for Taobao, he expects a 16% increase. He added that Tmall in particular is growing faster and faster as its cross-border efforts increase; it also performed well on Single’s Day, another shift he says impacts monetization.

Alibaba to improve monetization

Peck said higher ad loads on PCs are driving improvements in monetization, in addition to more gains in click-through rates due to personalization and long tail expansions, mobile ad load and merchant adoption, especially for Single’s Day when about 69% of gross merchandise volume was mobile. There was also a mix shift toward Tmall.

Another topic he expects to remain at the forefront of investor focus is the macro pressures, but he thinks data from the China NBS supports his estimates for gross merchandise volume. Also the Chinese ecommerce giant continues to invest in companies all across sectors from logistics to media and elsewhere. Peck sees these investments as “prudent steps by the company to establish a leadership in secular growth markets.” Going into Thursday’s report, he maintains his Buy rating and $100 per share price target on Alibaba.

Morgan Stanley ups Alibaba price target

Morgan Stanley analyst Robert Lin and his team raised their price target for the company’s stock from $101 to $115 per share and maintained their Overweight rating on it. They also expect to see improvements in the monetization rate, particularly in the China Retail business where they expect it to reach a record high in fiscal 2017. They believe monetization improvements will offset impacts from slowing gross merchandise volume growth.

They base their view of a 2.61% monetization rate in fiscal 2017 on two “conservative” assumptions. The first is growing commission income, which is accelerating as comparisons become easier as a result of the elimination of online lottery sales in China. The other is steady growth in advertising revenue, which they said doesn’t suggest many benefits from increases in ad loads.

They expect Alibaba to enjoy an increasing market share among online branded merchants, which made up about one-quarter of gross merchandise volume in apparel, which carriers high margins, in 2014. They also expect online penetration to hit 19% of retail sales within the next five years as major brands keep shifting their channel spending online in order to penetrate China’s lower-tier cities.

Alibaba shares edged higher by 0.44% to $70.03 per share in intraday trading on Tuesday.

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