Bob Peck Offers Three Items To Watch For Following Alibaba's Q1 Earnings

Alibaba Group Holding Ltd (NYSE: BABA) reported robust 1Q results, with engagement driving strong monetization. SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating on the company, while raising the price target from $90 to $110.

Solid Execution

Alibaba’s revenue growth accelerated in the quarter, with strong engagement and an increase in ARPUs from customers and merchants. The company recorded 61 percent EBITA growth, beating expectations. Cloud grew 156 percent and achieved incremental margin of 28 percent.

Ecosystem Drives Engagement

“The Alibaba commerce/media model is now seeing a classic flywheel at work as both customer and merchant “ARPU” increase and Alibaba's "closed loop" data helps to drive partner revenues and profits,” Peck wrote.

Strong engagement, along with improving tools and analytics, would likely allow the platform to surpass previous monetization peaks, the analyst commented.

What To Watch For

Peck mentioned three items to watch following the 1Q results:

1. Comps - Alibaba added mobile ad inventory in May 2015 and desktop in September 2015, which could create tougher comps.
2. Cloud - Profit trajectory may decelerate versus expectations on reinvestment.
3. Investments - Multiple initiatives for areas like content or expansion “could be lumpy.”

Peck raised the FY17 EBITDA and EPS estimates from $9.6 billion to $10.4 billion and from $2.98 to $3.16, respectively.

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