Alibaba (BABA) Stock Falls Today as Credit Suisse Lowers Price Target
NEW YORK (TheStreet) -- Shares Alibaba Group (BABA) - Get Report are down 2.88% to $81.97 in midday trading today as Credit Suisse lowers its price target to $112 from $113.
Analysts are "more cautious" on near-term gross merchandise volume (GMV) growth with "multiple small incidents happening at the same time," analysts said.
"We err on the side of caution regarding BABA's GMV forecast over the next few quarters, as BABA introduces new policies to improve service quality, enforces stricter requirements for new merchant entering TMall, and suspends lottery sales. The policy changes should be positive on GMV growth in the long term," analysts added.
Monetization rate is likely to reaccelerate in the second half of this year, but the first half is still "muted," analysts noted. Credit Suisse is positive that search algorithm changes would improve user [buyers and merchants] experience on Alibaba. They expect the transition could last for another few months.
Take-rate upside would come from higher mobile ad load and mobile TMall GMV growth, analysts added, saying they remain positive on Alibaba with "vast" market opportunities, including cross-border trade.
Credit Suisse maintained its "outperform" rating, while revising down their 2016/2017 earnings by 7.1%/3.7%, with lower GMV growth forecast and opex deleverage. They lowered 2015 EPS estimates by 2%.
One of the most interesting dynamics with this stock is its relationship with Yahoo! (YHOO) .
Insight from TheStreet's Research Team:
Eric Jackson, a contributor for TheStreet's RealMoney.com recently wrote 'Yahoo! Is the Caboose on Alibaba's Train,' in which he describes the interconnectedness of these two stocks with an insightful reflection taken from recent trading activity.
Here's a snippet of what he had to say:
Yahoo! (YHOO) finally saw its shares jump Wednesday, even as the rest of the market slumped.
If you think that's because CEO Marissa Mayer made a speech about how if you looked at all of Yahoo!'s new businesses, it's the fastest-growing startup in the world, think again. It was simply because Alibaba (BABA) finally caught a bid. Yahoo! shares have been pulled along by Alibaba's three-year ascent. As Alibaba made its U.S. debut and then soared to $120 per share last November, Yahoo! saw its shares break $50.
Earlier this quarter, Yahoo! announced what many investors, including me, wanted to see in terms of a plan to spin off Alibaba shares later this year. The shares briefly spiked on the news to multi-year highs.
The celebration was short-lived, though. The next day, investors seemed to anticipate that Alibaba would "miss" its fourth-quarter expectations and started to sell down Alibaba and Yahoo!. The results indeed did disappoint, and both companies' shares have sold off since then.
Wednesday, a Chinese-language interview with Alibaba CEO Jack Ma revealed that he had considered bidding for Yahoo! two years ago but thought it unwise because it would have potentially raised too many political issues in terms of a Chinese company controlling a historic American Internet company and having access to a lot of Americans' sensitive emails and personal data.
That's not really news. And it wasn't what finally pulled Yahoo! shares higher. It was again a case of what was happening with Alibaba.
Alibaba also toyed with breaking below $80 per share Wednesday. It's already at new lows in the post-IPO market. Yes, the IPO price was lower, but the stock has always traded higher than $80 since then. In yesterday's session, Alibaba about doubled its daily volume. There was about $4 billion worth of Alibaba stock that traded hands.
It was likely that many dip buyers of BABA came in believing the stock to be at a near-term bottom. So, while Alibaba finished 5% higher yesterday, Yahoo! ended a more muted 3% higher.
The opportunity for Yahoo! is to demonstrate to the market that it won't waste cash on hand on dumb acquisitions and that the core business is actually worth something. If it can do that, the stock deserves to be in the mid- to high-$50s today. If it cuts costs and spins out the Yahoo! Japan stake, it would be worth even more.
Until then, though, Yahoo! is just the caboose on Alibaba's train.
-Eric Jackson, 'Yahoo! Is the Caboose on Alibaba's Train' originally published 3/5/2015 on RealMoney.com.
Want more information like this from Eric Jackson BEFORE your stock moves? Learn more about RealMoney.com now.
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