Alibaba Doesn't Disappoint With Strong Start to 2018
We plan to raise the wide-moat online operator's $148 fair value estimate by 10%-15%.
Coupling this with strong cloud (up 96%) and international retail (up 136%) revenue trends, we now expect Alibaba to surpass the high end of its 2018 revenue targets and deliver 50% growth, even after factoring in Tmall customer acquisition and retention promotions and the anniversary of personalized customer data management efforts. Profitability was a pleasant surprise, with core commerce segment adjusted EBITA margins improved 170 basis points to 62.7% and all other segments except digital media narrowed their operating losses. This puts the company on target for adjusted EBITDA margins of 45%-46%, an increase from earlier estimates in the low 40s but still down from 47% a year ago because of stepped-up user experience, logistics, cloud, and content investments. Based on an increase in our five-year projected revenue compound annual growth rate to 27% (from 26%) and adjusted EBITDA outlook to the mid-40s (versus prior estimates in the low 40s), we plan to raise our $148 fair value estimate by 10%-15%. While we'd prefer a wider margin of safety, we still view the stock as one of the best ways to play longer-term Chinese consumption and mobile technology trends.
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