Alibaba Group Holding Ltd (NYSE:BABA) stock is up by 70% this year. Analysts continue to remain bullish.
The Chinese eCommerce giant Alibaba Group Holding Ltd (NYSE:BABA) recently made headlines when it announced that the company will be following the lead of Amazon (NASDAQ:AMZN) by entering the smart speaker segment. Smart home devices like Amazon Echo are still in a nascent market which is growing at a rapid pace. The Echo line of speakers and other Alexa based devices are expected generate up to $10 billion in revenues in next few years for Amazon. Alibaba is now selling a $73 Echo-inspired smart speaker product in China.
Following Amazon's lead has worked well for the Chinese giant, be it in eCommerce or cloud computing. Both the divisions have continued to deliver driving strong overall revenue growth. Alibaba's revenue grew by over 46% YoY in FY 2017 while operating income grew by over 53% YoY. The company reported a healthy operating margin of 33%, and net margin of 27.6%. Over the past five years, Alibaba's revenue has grown at a compounded annual growth rate (CAGR) of 42.6% while free cash flow grew at a CAGR of 37%. Free cash flow in FY 2017 came in at $10 billion.
Both organic and inorganic growth has remained strong. The recent high-profile acquisitions of Lazada and Youku Tudou have made substantial contributions to the top line growth. Alibaba recently announced that it has upped its stake in Lazada from 51% to 83% by investing another $1 billion in the Southeast Asia-based e-commerce company.
And the recent presentation by the company during its annual shareholders meet indicates that the growth is likely to remain strong. The company has guided its FY 2018 revenue growth to come in at between 45%-49%. Driven by expanding middle-class and rising incomes, eCommerce growth will remain the key growth driver. According to a report from Goldman Sachs, the Chinese eCommerce market will grow at a CAGR of 23% through 2020. Chinese eCommerce sales will increase from $750 billion in 2016 to $1.7 trillion in 2020. It's data-driven approach, continued improvement of its AI technology and the ecosystem's seamless integration with Ant Financial and Cainiao Logistics will help Alibaba capture a greater share of the Chinese eCommerce growth.
Alibaba's cloud computing unit is also showing strong growth. In FY 2017, the company's cloud computing segment reported a massive 120% YoY growth in revenues to RMB 6.7 billion in FY 17. Cloud computing growth was largely driven by an increase in paying customers. Paying customers for cloud computing grew by 70% from 513,000 customers in the same quarter last year to 874,000 this year. The number of paying customers will continue to expand given the huge demand for internet infrastructure across China. And while the cloud computing segment is still losing money, the losses have declined at a faster rate than expected.
Analysts continue to remain bullish on Alibaba stock.
Strong fundamentals and the potential for high growth has been the main factors driving Alibaba stock. Alibaba stock is up 70% this year and going by the looks of it, the stock will continue to go higher. Analysts all around have increased their price target on Alibaba stock. Nomura analyst Jialong Shi hiked his price target from $139 a share to $170 a share, while the price target was raised to $190 from $160 at Raymond James. J.P. Morgan analysts have upped their price target from $140 to $190. J.P. Morgan analysts believe that "Alibaba’s core commerce is expanding from traffic monetization to data monetization and this trend will quickly expand to its media/cloud businesses". And Barclays analysts, while reiterating their price target of $175 have also suggested that the stock could be worth $200 using "sum of the parts" valuation. "Given segments' diverse growth rates and valuation methods, as a backup, our sum-of-the-parts analysis values BABA at $200," Barclays wrote in a note to its client. All in all Alibaba stock still remains a good buy and it won't be surprising if Alibaba stock price doubles this year.
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