Alibaba Group Holding Ltd Worth $93 A Share: Trefis

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Alibaba Group Holding Ltd (NYSE:BABA) shares have been performing extremely well since the company’s initial public offering, but are they really worth more than $100 a share? Most expect the Chinese online retailer to post massive growth, but are current projections enough to justify the high share price?

Trefis analysts don’t think so. They’re positive on Alibaba, but the current share price represents a 10% premium on their price target of $93 per share.

Alibaba’s top line to grow rapidly

In a post on Forbes, the Trefis team said they expect Alibaba’s compound annual growth rate to be 25% between 2013 and 2020. They see the main driver as “enormous growth” on the company’s retail marketplaces in China because they think demand in the e-commerce market in China will “increase tremendously” in the next several years. Rising internet penetration and more internet shoppers are expected to contribute to the growth of Alibaba’s online marketplaces.

They believe the internet share of the overall retail market in China will pass 15% in the next couple of years, thus boosting transactions on Alibaba’s Tmall and Taobao marketplaces. The Trefis team also notes that as Alibaba expands into other areas and adds businesses, it will see additional revenue streams.

Of course more revenue streams mean more upside potential to Alibaba stock. The analysts believe if Alibaba’s compound annual growth rate in revenue rises as high as 28%, there would be a more than 20% increase in their target price, which would push it up to $112 per share.

The cost of Alibaba’s expansion

The Trefis team believes Alibaba will see falling EBITDA margins for now as it acquires more businesses and invests in mobile and cloud computing and other growth initiatives. They also point out that the company’s marketing expenses will likely rise as well. Because of Alibaba’s “growth ambitions,” they say investors can expect heavy investments in the near term which will drag down margins for now.

In the long term though, they expect Alibaba to be able to stabilize its margins. They project an EBITDA margin of 55% for the 2015 fiscal year and 54% for the 2015 fiscal year. By 2020, however, they expect the margin to hit 61%.

The analysts say if the EBITDA margin goes as high as 68% by 2020, there would be about a 10% upside to their price target. However, if it declines to 56%, they estimate a 10% downside to their target.

Shares of Alibaba Group Holding Ltd rose as much as 2% during regular trading hours today.

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