Analysts remain bullish on Alibaba amid ongoing U.S.-China trade fight
Alibaba (BABA) is scheduled to report results of its first fiscal quarter of FY20 before the market open on Thursday, August 15, with a conference call scheduled for 7:30 am ET. What to watch for:
1. CHINA TRADE FIGHT IMPACT: On the company's last earnings call, Alibaba executives said they believe China will become a net importing country over the next several years. At that time, they also said they were "not concerned" about slowing China exports affecting GDP growth. "More and more, Alibaba is becoming synonymous with everyday consumption in China, growing our base to 654M annual active consumers and extending our penetration in less-developed cities," stated CEO Daniel Zhang in the company's fourth quarter press release. Alibaba issued guidance to grow its FY20 revenue to over RMB 500M, compared to RMB 376.84M in FY19, and said it was "on track" to achieve RMB 1T of gross merchandise volume in FY20. Those comments and guidance came, however, prior to the latest escalations in the trade fight between the U.S. and China.
2. ANALYSTS STILL BULLISH: Since the company's last quarterly report, a number of Wall Street research firms have issued bullish commentary on Alibaba. On June 4, Loop Capital analyst Rob Sanderson initiated Alibaba with a Buy rating and a price target of $250. He said the company represents the "world's most complete digital retail ecosystem" with dominant positioning in commerce marketplaces, digital payments infrastructure, and cloud computing services. Sanderson also believes that Alibaba can sustain its growth trends in core commerce and ramp up margins in its investment areas, with "meaningful" stock price appreciation potential if fears of a U.S.-China trade wars normalize. On July 12, Morgan Stanley analyst Grace Chen said she expects a "well-executed" Q1 from Alibaba with sales growth of 39% year-over-year, non-GAAP EBITA growth of 12% year-over-year and strong GMV growth from Tmall during the 6/18 campaign. Chen thinks an "on track" Q1 will help ease investor concerns that Alibaba's aggressive plan to expand in lower tier cities will lead to margin shortfalls. She maintained an Overweight rating and $207 price target on Alibaba shares, pointing to a potential Hong Kong dual listing as a possible catalyst for the stock. On August 5, Jefferies analyst Thomas Chong started Alibaba with a Buy rating and $216 price target. Alibaba has "multiple growth drivers in the years ahead," with the core marketplace a "strong cash cow" enjoying secular momentum amid China's ongoing consumption upgrade, Chong told investors. Further, the company's "highly synergistic ecosystem" enables it to ramp up easily in lower tier cities and local services, said the analyst.
3. STOCK SPLIT, HONG KONG IPO PLANS: On June 18, Alibaba confirmed in regulatory filing that it was proposing a one-to-eight stock split for vote at its annual general meeting to be held on July 15. "The purpose of the Subdivision Proposal is to effect a one-to-eight share subdivision of the Ordinary Shares. The Board of Directors is proposing the Share Subdivision to increase the flexibility for the company in future capital market activities. Among other reasons, the one-to-eight share subdivision will increase the number of shares available for issuance at a lower per-share price, and the Board of Directors believes that this will increase flexibility in the company's capital raising activities, including the issuance of new shares," Alibaba explained. Subsequently, Alibaba shareholders voted in favor of the stock split at the company's annual general meeting.
Ahead of that news, Bloomberg's Crystal Tse, Vinicy Chan, Lulu Yilun Chen and Manuel Baigorri had reported that Alibaba was considering raising $20B via a second listing in Hong Kong. The e-commerce giant is working with financial advisers on the planned offering, and is aiming to file a listing application in Hong Kong confidentially as early as the second half of 2019, sources said, according to that report.
4. ALTABA LIQUIDATION: On June 27, Altaba (AABA) announced that, at the fund's special meeting of stockholders held earlier that day, its stockholders voted to approve the voluntary liquidation and dissolution of the fund. The fund said at the time that it intended to continue its sales of Alibaba Group Holding American Depositary Shares through open market transactions and/or through private dispositions not executed or recorded on a public exchange or quotation service. Through June 26, Altaba had sold approximately 126.4M Alibaba shares, approximately 45% of its stake as of May 17. The fund may sell up to 100% of its Alibaba shares prior to filing a certificate of dissolution with the Secretary of State of the State of Delaware, the fund disclosed, adding that it expected to make a pre-dissolution liquidating distribution late in the third quarter.