Credit Suisse released a note today following up on Alibaba Group Holding Ltd’s BABA 0.81% big Q4 earnings miss. Despite the disappointing numbers, analysts believe there’s still a lot to like about the stock.
Areas of concern
Obviously not everything was rosy for Alibaba in Q4, as the company’s $4.2 billion in revenue fell short of consensus estimates of $4.5 billion. Credit Suisse analysts point to Alibaba’s lower-than-expected 2.7 percent take rate, the amount of commission is receives for the merchandise it sells for merchants. Credit Suisse expected a take rate of 3.2 percent for the quarter.
The company’s pay for performance (P4P) ad system was altered during the quarter to shift focus from keyword pricing to search quality. Analysts believe that these changes create a better environment for Alibaba merchants, but could hurt the company’s profits over the next one to two quarters.
Analysts also mention the unexpectedly high level of share-based compensation expenses during the quarter as a drag on the bottom line.
Things to like
Despite the overall disappointment, analysts list several things they still like about Alibaba going forward. Gross merchandise volume in China (GMV) grew nearly 49 percent year-over-year.
Mobile GMV was particularly strong, and mobile take rate increased from 1.87 percent to 1.96 percent. Mobile penetration for the quarter was up nearly five percent from last quarter to 41.6 percent.
Finally, analysts were pleased by the gross and operating margins for the quarter, which came in at 76.7 and 52.8 percent respectively.
Outlook
Although analysts are now more cautious on their outlook for Alibaba, they believe that the stock’s
weakness after earnings offers an excellent buying opportunity. Credit Suisse lowered their price target for the stock from $118 to $113, but maintains an Outperform rating.
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