Morgan Stanley Assumes Alibaba (BABA) at Overweight; Positive on Ecosystem and AliCould

In a note earlier today, Morgan Stanley assumed coverage on Alibaba (NYSE: BABA) with an Overweight rating and a price target of $130, saying they believe the company's most valuable asset is the rich data generated by its ecosystem, fostering business beyond ecommerce, while AliCloud is poised to emerge as a lucrative growth driver.

Analyst Grace Chen highlights the reinventing e-commerce in China. "The rise of Taobao/Tmall has been disrupting China's offline retail segment," Chen said. "Alibaba is now invigorating its ecommerce platform with robust data technology, aiming to revitalize sales amid decelerating growth in gross merchandise value (GMV). Alibaba Executive Chairman Jack Ma has dubbed this approach 'new retail', seamlessly integrating online, offline and logistics. The result is a gradual decoupling of GMV from sales growth, accompanied by faster online marketing service growth than commission-based growth. It also decided to report annual GMV (but not quarterly GMV) starting from F2Q17. To evaluate the progress of the business, we advise switching from a GMV-centric model to an efficiency-index-based assessment matrix, as rising monetization (i.e., its China retail marketplace revenue/GMV) will be a key factor for future revenue growth."

The analyst views AliCloud as disrupting enterprise IT. "We view Alibaba as an emerging IT giant in China given its public cloud business leadership (50% of China's public cloud sales in 2016, we estimate). We forecast AliCloud sales of US$1bn in F2017 with near breakeven, rising to more than US$3bn in F2019 – a critical level, as Amazon Web Services' (AWS) OPM was 22% with US$3.1bn in sales in 2013. Similar to AWS' business disruption in the traditional hardware IT vendor segment, AliCloud's potential success looms as a threat to hardware makers in China."

Meanwhile, Ant Financial is reshaping China's financial market. "Alipay has become China's largest third-party payment service provider, with 68% market share by mobile transaction value in 2015," the analyst said. "It is also actively developing offline payments and small loans/personal financing and wealth management products, which could profoundly affect China's financial industry."

For an analyst ratings summary and ratings history on Alibaba click here. For more ratings news on Alibaba click here.

Shares of Alibaba closed at $91.07 yesterday.

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