[Company news]Alibaba: Why Morgan Stanley Raised Its Target To Street High Of $130.60
Created#More Posted time:Jul 4, 2016 15:56 PM
Alibaba: Why Morgan Stanley Raised Its Target To Street High Of $130.60Morgan Stanley raised its price target for Alibaba Group (BABA) from $119.30 to a street-high $130.60 a share, which represents a potential 71% upside from its current share price.
Why is Morgan Stanley doing this now? Amid all this Brexit uncertainty, risky assets tend to be sold off first. The bank’s upgrade at this point in time suggests analysts’ conviction.
According to analyst Robert Lin and team, Alibaba has transformed itself from an e-commerce to a data company, which fetches a higher valuation. It is essentially the same argument for Amazon.com (AMZN).
Specifically, Alibaba’s AliCloud will drive significant value. Lin wrote:
We value AliCloud at US$39bn, based on 4.5x F20e P/S; our US Internet team values AWS at US$91bn by applying 5.6x F17e P/S. By F20, we estimate that AliCloud’s revenue can reach Rmb58bn, at a >89% CAGR for F16~20; – surpassing AWS’s revenue in 2015. We believe our long-term multiple for AliCloud is justified given faster growth and visible revenue opportunity. It has 500k paying customers, including half of the top 35 Chinese “unicorn” Internet companies. Its value is further supported by the significant positive impacts on all of Alibaba’s businesses.
Our DCF-based price target rises 9%, reflecting AliCloud’s better revenue and earnings outlook.