Why Alibaba's 'tentacles' have analysts drooling
MARKETWATCH 3:05 PM ET 10/29/2014
Symbol Last Price Change | BABA | 99.16 | -0.52 (-0.52%) | | BIDU | 224.1 | -4.86 (-2.12%) | | TCEHY | 15.625 | -0.035 (-0.22%) | | EBAY | 51.17 | -0.03 (-0.06%) | | QUOTES AS OF 03:05:13 PM ET 10/29/2014 |
NEW YORK (MarketWatch)--The 40-day quiet period on Alibaba Group's(BABA) IPO underwriters is over and the consensus is in: China's largest e-commerce company is a global powerhouse, and it is on track to surpass Wal-Mart Stores as the world's largest marketplace within a few years.
That bold prediction comes from Alibaba's(BABA) closest advisers, who until Wednesday were mandated by the SEC to remain quiet on the company as part of a post-IPO lull.
On Wednesday, at least five of the six banks named as lead underwriters during the September IPO initiated bullish coverage on Alibaba(BABA). Other brokerages, including Pacific Crest, Nomura and Raymond James, that also had to comply with the quiet period were similarly upbeat.
"With [Alibaba's(BABA)] tentacles everywhere we think it's very interesting to think about the opportunity ahead of them," SunTrust Robinson Humphrey analyst Rob Peck said on a call with clients.
Morgan Stanley started Alibaba(BABA) with an outperform rating and a $125 price target, Citigroup initiated with a buy rating and a $118 target, J.P. Morgan Chase initiated with overweight and a $112 target, while Deutsche Bank reportedly initiated with a buy rating and $112.70 target.
Goldman Sachs was the lone bear among Alibaba's(BABA) advisers, initiating coverage with a neutral rating and a $102 target, $10 below the next closest target. However, Goldman said the rating--one notch below a buy--was mostly because of the stock's post-IPO spike. Shares of Alibaba(BABA), while down 1.2% to $98.45 in recent trade, have risen 49% since pricing at $ 66 in September.
Goldman expects Alibaba's(BABA) shares to appreciate over the longer term, and believes they'll reach $133, on a market cap of $350 billion, within two years. Today, Alibaba's(BABA) market cap is valued at $243 billion, though it briefly surpassed Wal-Mart's in intraday trade on Tuesday.
Goldman ranked Alibaba(BABA) ahead of Baidu Inc.(BIDU), Tencent Holdings(TCEHY) and Google Inc. (GOOGL) by their respective earnings per share growth rates, saying Tmall and the international rollout of PayPal rival Alipay will lead world-wide revenues higher over the next five years.
Meanwhile, Citi said there is underappreciated upside for e-commerce in Alibaba's(BABA) home market of China, giving Alibaba(BABA) "huge growth headroom" in the world's biggest consumer market.
On a call with clients, Peck said he expects Alibaba(BABA) to surpass the world's largest retailer, Wal-Mart, by gross merchandise volume [GMV] within two years. Alibaba(BABA) is currently the second largest marketplace by GMV--a measure of all merchandise sold.
Jack Ma's own bold projection calls for Alibaba(BABA) to reach $1 trillion in GMV over the long term. This compares with Wal-Mart's current GMV of $480 million and Alibaba's(BABA) of $296 million. Peck said he thinks the goal is reachable within five years.
"We think the feasibility of this goal is a big question for investors and instrumental to a bullish or bearish thesis on Alibaba(BABA)," Peck said.
Of course, there are risks to this type of growth. Chief among them is a general slowdown in global GDP, which would include China, Peck warns.
Alibaba (BABA) is also faced with the daunting task of expanding into new markets, such as the U.S., that have well- established incumbents, including Amazon Inc. (AMZN) and eBay Inc.(EBAY)
-Jennifer Booton; 415-439-6400; AskNewswires@dowjones.com |
