Services

Why This Analyst Sees Even More Upside for Alibaba After Coronavirus

Chris Lange

Published: February 20, 2020 11:40 am

The impact of the Covid-19 coronavirus has been very pronounced in Chinese companies, but it seems that Alibaba Group Holding Ltd. (NYSE: BABA) has weathered this storm better than most. One independent research firm believes there’s even more upside for the Chinese e-commerce giant from here.

Argus rated Alibaba as Buy and raised its price target to $260 from $210, implying an upside of 17% from the most recent closing price of $222.14.

The independent research firm was quick to note that Alibaba is assuming “responsibilities and duties” toward the affected community while providing relief measures to support small and medium enterprises. Alibaba is seeing opportunities created by the “force of change.” With restaurants and businesses remaining closed, Alibaba’s Freshippo (online food delivery) and other delivery platforms have seen a surge in business.

Alibaba posted a strong overall calendar 2019, highlighted by its biggest-ever Single’s Day in November. The CEO, Daniel Zhang, offered interesting perspectives on China overall and growth in its consumption economy. Consumption contributed 58% of China’s economic growth and accounted for 3.5 percentage points to China’s 2019 GDP growth, which was in the 6% range.

China’s retail sales overall grew 8% in 2019. Alibaba’s revenue grew about 50% last year, signaling that the company continues to grow market share within the Chinese consumer economy.

In terms of company metrics, mobile active users reached 824 million in the calendar fourth quarter of 2019 and were up 39 million sequentially from the calendar third quarter. Daily active users are growing faster than mobile active users, signaling strong unit engagement and buying frequency.

Argus concluded saying:

One little noticed impact of COVID-19 is that it has banished the trade war from the headlines and from investors’ concerns. Although China’s growth has slowed, Alibaba, as the primary online retail platform in China, appears to be taking share from weaker peers. Additionally, Alibaba believes it is well positioned for continued growth and market share gains based on demographics in both major and mid-tier cities, and its ability to leverage data analytics from the “feedback loop” of its active customer base the ADS price continues to reflect past-year weakness in the stock.

Here’s what a few other analysts had to say about Alibaba:

• Credit Suisse reiterated an Outperform rating and raised its target to $249 from $240.
• CFRA maintained its Hold rating and raised its price target from $215 to $222.
• SunTrust Robinson Humphrey reiterated it as Buy and raised its target to $250 from $212.
• Susquehanna reiterated its Positive rating and raised its target price to $260 from $205.

Alibaba stock traded down about 1% at $219.59 on Thursday, in a 52-week range of $147.95 to $231.14. The consensus price target is $250.99.