Wedbush Starts Alibaba (BABA) at Outperform

Wedbush initiated coverage on upcoming IPO Alibaba (NYSE: BABA) with an Outperform rating and a price target of $80. Analyst Gil Luria thinks Alibaba offers a compelling combinations of size, growth and profitability, and he sees gross merchandise volumes greater than Amazon and eBay combined.

"Growth in Chinese e-commerce appears to have room to grow at 30%+ for several years based on low penetration and “leapfrogging” of offline commerce, especially in tier 3 and 4 cities," said Luria. "We see Alibaba’s competitive position vis-à-vis other marketplaces as sound given its network effect and scale advantages. Profitability in a hyper-competitive consumer e commerce market presents an advantage over direct competitors. We believe the lack of profitability at direct competitors such as JD, VIPS, JMEI and DANG and AMZN China indicate price competition may not be enough to make inroads in the marketplace model."

"Mobile monetization transition happening quickly and appears to be under control, in our opinion. Due to its pay-for-performance (placement) monetization, we expect BABA to be challenged in a similar way to GOOGL and FB with increased mobility." he added. "We believe BABA has favorable economics from its Alipay relationship, as it appears to be keeping >80% of transaction fees collected by Alipay. Although Alibaba shares a similar penchant to AMZN and GOOGL for sprawling expensive investments, we believe that at current rates, that penchant will leave enough earnings growth for investors."

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