After another up day for Alibaba Group Holding Ltd (NYSE: BABA) and a down day for Amazon.com ( AMZN) on Tuesday, Alibaba is within about $5 billion of eclipsing Amazon’s $474 billion market capitalization and reclaiming its title as the largest e-commerce company in the world.
Alibaba’s market cap has already more than doubled in 2017, but a new report from HSBC suggests the Alibaba rally has plenty of legs in the long term.
The last time Alibaba was larger than Amazon was in early 2015 when the two companies had market caps of around $200 billion each.
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According to analyst Chi Tsang, Alibaba is focused on growing and maintaining its market share at the expense of profits and margins. Alibaba has reported 49 percent year-over-year gross merchandise volume growth for its Tmall e-commerce platform in 2017. However, Tsang says Alibaba is not satisfied and may choose to increase its sales and marketing expenses in fiscal 2018.
This year, Alibaba increased its marketing spending by 21 percent to more than $683 million, but Tsang says Alibaba has the opportunity to spend more aggressively to compete for market share with Chinese rival JD.com ( JD) and others.
Over the next five years, Alibaba also plans to spend $15 billion on data technology and delivery with the goal of providing 24-hour delivery in China and 72-hour delivery worldwide.
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Tsang says investors shouldn’t worry about margins getting squeezed in 2018 as long as Alibaba continues to outpace JD.com in gross merchandise value growth.
“Alibaba has valuable data assets on its consumers that it can leverage to increase value to both its brands and buyers, resulting in high monetization and margins,” Tsang says. “It is the thought leader in China retail and its new retail concept sets the stage for long-term value creation.”
In addition to its unparalleled e-commerce market positioning in China, Tsang says Alibaba stock remains an excellent long-term value as well. Even up 107 percent in 2017, Alibaba trades at just 25 times HSBC’s fiscal 2019 earnings per share estimate, a reasonable premium for a stock consistently delivering revenue growth topping 40 percent.
Looking ahead to the next three years, Tsang projects Alibaba will report 43 percent compound annual EPS growth as well.
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HSBC has a “buy” rating on Alibaba. If the stock continues its march to HSBC’s $204 price target, it’s only a matter of time before Alibaba passes Amazon as the world’s largest e-commerce company.
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Alibaba Group Holding Ltd (BABA) Is Chasing Down Amazon originally appeared on usnews.com
