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The Monster That Ate the Internet: Alibaba Gains as China Spends

There are four things that are fair to expect from the earnings report, according to MKM Partners Analyst Rob Sanderson. Out one of them is not management guidance for a big boost in revenue. He writes:

  • It appears that online consumption trends in China continue to accelerate.
  • Along with monetization gains, strong GMV [gross merchandise value] growth should drive powerful top line results.
  • Management plans to invest aggressively in demand stimulus, its new retail strategy, rural China and international efforts.
  • Investors understand these dynamics and expectations are high, but appropriate.

He thinks the Cainiao logistics unit's consolidation into results will add about 7 billion renminbi to revenue in the second half of the fiscal year, and increase group level losses. But all but 0.3% is likely to be offset by a drop in equity losses, he writes, adding:

"... Is a guide-up likely this quarter? We don’t think so. Revenue growth exceeded initial guidance by 800 basis points last year. Despite pacing well ahead after the fiscal second quarter (up 57% vs. 48% guide), guidance was not raised until after the fiscal third quarter. We are not suggesting the magnitude of upside will repeat (a lot of things went right last year). We’re suggesting that management tends to be patient and we think a revision to guidance is unlikely until the December quarter is in the books (typically over a third of the full year) ..."

Sanderson has a $220 price target on Alibaba, which closed at $186.08 Wednesday and was up another 1.4% after the close.

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