Alibaba Says Cloud Computing Will Turn a Profit. Analysts Say ‘Buy.’ - Barron's

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A logo of the Chinese multinational e-commerce, retail, internet, and technology conglomerate, Alibaba

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Alibaba Group Holding, already seen as the wildly successful Chinese version of Amazon.com, has raised hopes about its future profitability.

The stock was up nearly 5% on Wednesday after the company wrapped up the third day of its Ali Virtual Investor Day, which began earlier this week. Analysts are largely happy with the updates the company provided, especially the unexpected news that its cloud business, a star performer at Amazon (ticker: AMZN), will be in the black next year.

Citigroup’s Alicia Yap reiterated a Buy rating and $318 price target on the shares. Alibaba (BABA) was up 4.8% to $290.16 in recent trading

She said that while the company didn’t provide any new revenue forecasts, which many were expecting, she was pleasantly surprised to hear that the company expects AliCloud to turn a profit in fiscal 2021, and its logistics division Cainiao to deliver positive operating cash flow that same year.

Yap believes the fact that these two businesses, begun in 2009 and 2013, respectively, are in the “harvest stage,” could help reassure investors that Alibaba’s more recent forays outside of its core e-commerce business will ultimately pay off, too. “In light of behavioral changes of consumers and businesses in a post pandemic environment, and thanks to Ali’s vision of digitization in the past 20 years, we believe the company is well placed (at the right time) to capitalize on the upside opportunities of digitization of many traditional industries, global trade, global logistic capability,” she wrote.

RBC Capital Markets’ Mark Mahaney reiterated an Outperform rating, keeping his target for the stock price at $300.He too was upbeat about the AliCloud news.

“Management noted the near- to medium-term focus for Cloud remains in China, where the growth of the overall Cloud market is just getting started, and there’s no reason why AliCloud would be at a much lower margin than AWS, which reached 31% operating margin in its latest quarter,” he wrote.

The company sees China’s cloud market, now just an eighth of the size of its U.S. counterpart, closing the gap, thanks to an expanding economy. “The one key message we’ve heard throughout this investor day is that we are still in the very early innings of China Cloud growth,” he said.

Robert W. Baird’s Colin Sebastian also reiterated an Outperform rating, boosting his price target by $50, to $325. He said he was heartened that the company appears to be taking a more balanced approach between growth and profitability, both in the cloud business and overall, and noted that the event “reinforced several consistent strategic priorities” for the company.

“In our view, Alibaba has clearly distinguished itself as one of the world’s pre-eminent e-commerce and technology companies,” he said.

September 30, 2020 at 11:01PM
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Alibaba Says Cloud Computing Will Turn a Profit. Analysts Say ‘Buy.’ - Barron's

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