Alibaba Remains a Top Internet Mega-Cap Pick, Says Raymond James

The suspension of Ant Group’s highly anticipated initial public offering took center stage in all Alibaba (BABA) related news last week. The Chinese e-commerce giant owns roughly one-third of the fintech company, which was expected to go public last Thursday. But things didn’t go as planned, as the Chinese regulators halted the $34.5 billion public debut – the largest IPO on record.

While the IPO is expected to get the go ahead eventually, the unfolding drama made for an interesting backdrop to the release of Alibaba’s quarterly numbers.

F2Q revenue increased by 30% year-over-year to 155 billion renminbi ($22.8 billion) and came in in-line with consensus estimates. The company beat on the bottom line, with Non-GAAP EPS of $2.65 beating the Street’s call by $0.58.

While Mobile MAUs (monthly active users) increased by 12% year-over-year to 881 million, the growth decelerated compared to the 16% growth exhibited in the previous quarter.

However, with year-over-year increases to Retail Marketplace (20%), Cloud (60%) Cainiao Logisitcs (73%) and International (30%), Raymond James analyst Aaron Kessler believes Alibaba continues to “demonstrate strength across key businesses.”

In fact, the 5-star analyst makes no bones about his bullish outlook for BABA.

“Alibaba remains our top Internet mega-cap pick given: we expect continued solid China ecommerce growth with Alibaba as the biggest winner (Alibaba captured about one-sixth of China total retail sales in FY20, crossing $1T in GMV); 2) we believe take rate upside is underappreciated (4% CMR+Commission take rate in F1Q21 with potential for the mid/high-single digits); we believe valuation is attractive at ~19.5x 2021 marketplace EPS (including SBC) on our base case scenario vs. ~20%+ expected long-term growth,” Kessler wrote.

All told, Kessler rates BABA shares a Strong Buy along with a $330 price target. The figure implies nearly 16% upside from current levels. (To watch Kessler’s track record, click here)

Overall, there are currently no BABA bears on Wall Street. As it happens, there are no analysts on the fence either. With all 24 ratings a Buy, the stock qualifies with a Strong Buy consensus rating. The average price target is a touch higher than Kessler’s and at $337.53, could yield returns of 12.5%. (See Alibaba stock analysis on TipRanks)

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