This Alibaba stock price prediction article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

• Alibaba’s stock price is now 26.7% higher than when I made my September buy recommendation. I still see BABA rising to beyond $240 within the next 90 days.
• Alibaba will report its Q3 2020 numbers today. I expect it again to beat EPS and revenue estimates.
• If Alibaba reports beats on revenue and EPS estimates, the stock will likely rally to above $230 this month.
• Amazon’s retreat from China will only accelerate Alibaba’s growth.
• Coronavirus has no long-term effect on Alibaba Even if there’s a delay in production and delivery, Alibaba’s e-commerce goods will still get paid upfront.

I am reiterating the September 22 buy rating I gave Alibaba (BABA). The 26.7% return since that day will most likely increase after Alibaba reports its Q3 2020 EPS and revenue today. Alibaba has a great history of beating EPS and revenue estimates. Consensus Q3 revenue estimate is $22.87 billion  and EPS, $2.25. I believe the Christmas shopping season is good enough reason to say that Alibaba will report a number higher than $22.87 billion today.

My $240 price target for Alibaba’ stock is reasonable. TipRanks-tracked Wall Street analysts have a consensus price target of $255.65 for BABA. You should go long on BABA because highly-paid analysts are even more enthusiastic than I am for Alibaba. Everybody in Wall Street is saying BABA is a buy.

Why Wall Street Remains Bullish

Let us not forget that high-end goods e-commerce player Kaola is now owned by Alibaba. A lot of middle-class and wealthy Chinese customers spent big on pricey Kaola purchases last Christmas. Kaola’s 2018 estimated revenue was $2.92 billion. It makes sense that Kaola ended 2019 with quarterly revenue of more than $800 million. The higher-margin products on Kaola is also likely helping Alibaba’s margins. I won’t be surprised if Alibaba reports a Q3 EPS of $2.30 or higher.

Amazon’s (AMZN) decision to shutdown its e-commerce business in China last April 2019 only drove more repeat customers to Alibaba. Having less competition in China means Alibaba will continue to dominate in that country’s $1.96 trillion/year e-commerce retail industry. A faster growth in China means Alibaba has more money to spend its subsidiary Lazada’s leadership in Southeast Asia e-commerce.

Alibaba’s Stock Is Still Cheap

BABA is a much cheaper growth stock than AMZN. Alibaba’s stock is still notably undervalued when compared to Amazon (AMZN). This is why I believe BABA has a lot more room to grow. More investors will eventually realize that Alibaba is growth much faster than Amazon. Amazon’s retreat from China and Southeast Asia means Alibaba will continue to outpace Amazon as a growth investment.

Please study the chart below. BABA’s FWD P/E GAAP valuation is only 28.82. That’s less than half of Amazon’s 75.08. This undervaluation of Alibaba’s stock is irrational. Alibaba’s 3-year revenue CAGR is 52.59% – far higher than Amazon’s 27.30%.  

The other chart below also illustrates that Alibaba is a much more profitable than AMZN. The rapid growth of Alibaba is not based on Amazon’s low-margin approach. Alibaba’s valuation should go higher once more investors appreciate that its net income margin is 34.42. This is 7x greater than Amazon’s net income margin of 4.13%.

BABA deserves a higher valuation considering its international expansion is in full blast. Alibaba’s entry in India e-commerce last year via its UCWeb app is helping quarterly revenue growth. There are 130 million active users of UCWeb in India. Alibaba is now involved in India’s $100 billion/year online retail business.

Alibaba Cloud Is Another Big Growth Driver

Aside from stronger e-commerce revenue growth, Alibaba Cloud is also growing fast. Alibaba Cloud ended FY 2019 with $4.4 billion in annual run rate. It should be doing quarterly sales of more than $1.5 billion by now. As of Q3 2019, Synergy Research said Alibaba Cloud has around 7% market share in the $20 billion/quarter global cloud computing infrastructure business.

My own view is that Alibaba Cloud will soon beat Google (GOOGL) Cloud’s 8% market share. Alibaba Cloud dominates in China and it is also big in Asia. Gartner reported that Alibaba Cloud has almost 20% market share in Asia Pacific, making it number one.

Alibaba B2B e-commerce solutions complements selling cloud computing services to many Asia Pacific companies. Instead of companies only hiring Alibaba to help them find wholesale buyers of their goods, they could also subscribe to Alibaba Cloud services.

Final Thoughts on Alibaba Stock Price Prediction

The successful expansion in Southeast Asia and India makes Alibaba less dependent on China for e-commerce growth. Alibaba Cloud’s rise to becoming the world’s no.4 in cloud computing services is another strong growth catalyst. I expect Alibaba Cloud to become a $10 billion/year business within the next two years.

Alibaba has no lingering headwind from the new coronavirus outbreak in China. There might be temporary delay in product delivery but Alibaba will still get paid for every product ordered online. Fearful Chinese customers will still do online shopping at the comfort of their homes.

Many foreign cities are banning Chinese tourists from Hubei. The casinos Macau are still closed. They cannot do foreign vacations or gamble, Chinese people therefore have more spendable money for online shopping. Anything that increases the online shopping budget of Chinese citizens is good for Alibaba.

The stay-more-at-home mood in China enforced by the government (to control the spread of the new corona-virus epidemic) also helps Alibaba’s streaming platform Tuduo. It is safer for Chinese people to just binge watch Tuduo videos than going out to sporting events, karaoke clubs, or nightclubs/restaurants.

My buy rating for Alibaba’s stock is supported by its bullish one-year algorithmic market trend forecast score from I Know First.

Past Successful BABA Stock Prediction

I Know First has been bullish in respect BABA over the course of 2019 and we issued a bullish Alibaba stock price prediction almost one year ago. On February 10, 2019, the I Know First artificial intelligence stock prediction algorithm issued the above bullish forecast for BABA for long-term horizons. As we see today, the algorithm provided winning BABA stock prediction – the stock price have hiked by some 29% in line with the I Know First machine learning stock prediction, despite the market volatile times.

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Please note-for trading decisions use the most recent forecast.