Alibaba (BABA) Picks Up Initial Pre-IPO Research Coverage and it's Bullish

With just days left until its IPO debut (expected Friday, September 19th), Atlantic Equities provided investors with an early read on Alibaba (NYSE: BABA) following the company's amended F-1 on Friday which showed the company plans to offer offer 320,106,100 ADS and sees a pricing range of $60 to $66 per ADS. Analyst James Cordwell initiated research coverage on the stock Monday with an Overweight rating and $100 price target, suggesting over 50% upside from the top-end of the IPO range.

"With ~80% of Chinese ecommerce, the company has established a strong position in this rapidly growing market, which we expect it to maintain despite ongoing intense competition," Cordwell said. He added, "... Alibaba's scale, broad reach beyond Tier 1/2 cities and brand support should enable it to broadly maintain its share of the Chinese ecommerce market, which we expect to grow at a >30% CAGR over the next three years>."

The analyst also sees the take rate becoming an increasing tailwind. "Chinese ecommerce is rapidly shifting to mobile, with 33% of Taobao/ Tmall's Q115 (Jun) GMV from that platform, a 21pt YoY increase. This has placed a drag on take rate given Taobao's ad-based monetisation is less effective on mobile. However this issue should be transitory as we expect Taobao to improve mobile monetisation and growth is increasingly coming from Tmall, whose commissions are unaffected by the shift."

Commenting on risks, the analyst said Alibaba's lack of fulfilment capacity is a long-term risk if its efforts to leverage its scale to drive third-party investments fail.

The analyst views its $100 valuation target as in-line with peers. "Our 30x CY16 target PE is in line with Tencent/Baidu's multiples and implies a PEG of 1.1x, reasonable given our forecast 26% FY15-FY17 EPS CAG," the analyst notes.

For an analyst ratings summary and ratings history on Alibaba click here. For more ratings news on Alibaba click here.

Shares of Alibaba closed at $2.34 yesterday.

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