Growth Prospects, Analysts Upgrade Turns Alibaba Bullish

Growth Prospects, Analysts Upgrade Turns Alibaba Bullish
April 6, 2017

 
Alibaba Group Holding Ltd (NYSE: BABA), the world’s largest e-commerce company by merchandise volume, reported a 54% increase in the fiscal 2017 third-quarter earnings to RMB 53.25 billion ($7.67 billion), from RMB 34.543 billion in the similar period last year. The reported revenues were $375 million higher than Wall Street estimates. The 3Q17 net income increased to RMB 17.16 billion or RMB 6.94 per share ($2.47 billion or $1 per share), from RMB 12.46 billion or RMB 4.90 per share in the 4Q16. Excluding charges, the non-GAAP net income was RMB 22.491 billion or RMB 9.02 per share ($3.24 billion or $1.30 per share), up 36% from non-GAAP income of RMB 16.58 billion or RMB 6.52 per share in the same period last year, and higher than Thomson Reuters consensus estimates of $1.13 per share. So far, following the declaration of results on January 24th, the stock has appreciated by about 12% to $107.44 (as of yesterday). We expect the stock to rise further in the days to come, on the basis of the details provided herewith.

For the fourth-quarter, Alibaba posted core commerce revenues of RMB 46.57 billion ($6.71 billion), up 45% on a y-o-y basis. Alibaba is growing leaps and bounds in cloud computing business. Even though it is relatively a small player in comparison to Amazon, still, the growth is closely monitored by analysts. In the recent quarter, the company reported cloud computing revenues of RMB 1,764 million ($254 million), up 115% on a y-o-y basis. More importantly paying cloud subscribers increased to 765,000, from 651,000 in the prior quarter.

Mobile MAUs (monthly active users) were 493 million at the end of third-quarter of fiscal 2017. Alibaba also reported 443 million active buyers in the quarter ended December 2016. One of the main issues faced by Alibaba is the counterfeit products sold on its platform. Nearly 100,000 brands are sold as of now. The company is proactively engaged in removing counterfeit products. In this regard, Alibaba has entered into a coalition with nearly 20 brands, including Louis Vuitton, Samsung, and Swarovski, to crack down on counterfeit products. Notably, the company recorded revenue of RMB 120.7 billion ($17.4 billion) in the Global Shopping Festival (one-day online sale) conducted on 11.11.2016.

Considering the growth prospects, Vetr investment research firm upgraded the stock with a “strong buy” rating, from the previous “buy” rating. Vetr has given a target price of $115 for the stock of Alibaba. Barclays has also initiated coverage on the stock with an “overweight” rating. A target price of $130 was issued as well. Thus, considering the growth prospects and analysts upgrade, the stock is likely to remain in a bull orbit in the short-term.

The stock is currently moving within an ascending channel, as shown below. An increase in support from buyers, at the current level, is also reflected by a rising money flow index. Thus, we can look forward to see the share price appreciate and touch the upper band of the channel.

Alibaba - Technical Analysis - 6th April 2017

To take advantage of the analysis, a trader can purchase a call option offered by any binary broker. The option should remain active for a week. Furthermore, in the interest of trader, the contract should be bought only when the stock trades near $108 in the NYSE.

Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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