SunTrust analyst Bob Peck thinks this weekend’s takedown of Alibaba from Barron’s has some problems.
In a note to clients on Monday, Peck — who has a “Buy” rating and $US100 price target on the stock — took a look at four issues raised in the Barron’s article that he thinks aren’t exactly big problems.
First, Peck doesn’t think comparisons to eBay are warranted.
“The article cited that Alibaba trades at a higher multiple than eBay — which is true — but it neglects the drastically different growth rates which would justify higher multiples,” Peck writes.
“Further, we would also note that eBay traded at higher multiples vs. its current multiple in higher growth periods. We think this point is nonsensical.”
Peck also doesn’t think Alibaba’s fight against fraudulent listings is a big deal because, like eBay, Amazon, and other third-party retailers, the fight against fraud will be never-ending.
As for Barron’s claim that spending per user on Alibaba’s platform is 25% higher than in the US, Peck thinks the maths is simply wrong. Or at least, too simplistic.
By Peck’s calculations, about $US31 billion was spend online in the US last year, and with an estimated 200 million shoppers, the average shopper spent about $US1,600 per year online. Alibaba’s average customer spent $US1,150. Peck also gets into the nuances of how some Alibaba sites involve some retailers selling to other retailers, but again, his point is that this demerit against Alibaba’s business isn’t really that.
And finally, Peck also discounts perhaps the most cynical piece of information in the Barron’s profile.
As Barron’s outlined, Alipay, Alibaba’s payments group, was shifted into a separate partnership controlled by Jack Ma, a move that also eliminated Alibaba Group’s claim to Alipay’s profit. The implication here is that Ma took one of Alibaba’s most profitable units and moved it into a safe place where only he had claims on profits. Pretty damning.
But Alibaba said this move was required because of increased Chinese banking regulations. Peck agrees.
“This topic was well disclosed by the company and covered by investors prior to the IPO,” Peck writes. “With Softbank and Yahoo! owning a controlling stake of the VIE (“virtual ownership”) and the pending change in licensing requirements at the time — we believe there was risk, and delay or regulation placed on Alipay at the time could have negatively impacted its early leadership position in payments.”
Alibaba, for its part, has asked Barron’s to issue a correction.
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