Alibaba Group Holding Ltd PT Cut For China Macro Problems

Alibaba Group Holding Ltd PT Cut For China Macro Problems
By Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

With Alibaba, we’re seeing the same story again and again: analysts are slashing their price targets for the Chinese company because of the continuing economic turmoil in the country. The latest firm to do this is Deutsche Bank, which cut its target to $85 per share but maintained the Buy rating. But none of them are slashing their targets as low as the Barron’s article from over the weekend suggested the stock could go.

Alibaba affected by Chinese economy

China’s economy has been struggling over the last several weeks, with the nation’s central bank trying to prop up the stock market and deciding to devalue the Chinese currency more than once. The stocks of U.S.-based companies with strong exposure to China have struggled of late as Wall Street speculates that their sales will drop, so it’s no wonder that Chinese retailers like Alibaba are expected to struggle even more.

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Deutsche Bank analyst Alan Hellawell III and his team said in their report that their interviews last week confirmed that e-commerce platforms in China are especially struggling because of the macro economic climate there. Alibaba has so far seen average order size fall because consumer spending in China is falling, although Hellawell noted that user engagement on the platform remains “encouragingly healthy.”

Headwinds in apparel

He also provided a fuller breakout of in which areas Alibaba’s e-commerce segment is especially struggling. For example, he said their industry checks suggest that the company may be experiencing headwinds in apparel and 3C. Alibaba already enjoys a sizeable penetrate rate in both online categories, which is why growth in them is slowing more than growth in other categories.

However, he said the company is seeing some of its new categories rise, like home furniture, fresh food and auto accessories. Hellawell believes growth in these new categories will temper the slowdown in the other categories.

Tailwinds in mobile

The analyst and his team also pointed out that some categories, like apparel, bring lower commission rates than others. However, they like how mobile monetization is going, and they think it could “drive blended take-rate upside” this month. They also think mobile monetization will “fuel more sustained blended take rate improvement starting in 2016.

As a result of many price target cuts for Alibaba, many firms are also trimming their targets for Yahoo, which holds a sizeable stake in the company until it spins that stake off.

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