Alibaba Is Following Amazon’s Playbook

FILE - In this Sept. 19, 2014, file photo, the Alibaba logo is displayed during the company's IPO at the New York Stock Exchange. The Alibaba Group reports financial earnings on Thursday, Jan. 28, 2016. (AP Photo/Mark Lennihan, File)

Even after Alibaba Group Holding Ltd (NYSE: BABA) stock nearly doubled in 2017, analysts see no signs the company’s incredible performance will slow down. In fact, Jefferies analyst Karen Chan says Alibaba’s combination of cloud services growth, e-commerce growth and international expansion will have Alibaba stock outperforming the market for years to come.

Chan says Alibaba Cloud is the best-in-breed cloud services play in China, and investors should expect the business to mirror the success that Amazon.com (AMZN) has in the U.S.

“We are constructive on Alibaba Cloud’s multi-year high-growth opportunity given its similar growth trajectory to AWS, despite a five-year time lag,” Chan says.

Jefferies is projecting Alibaba Cloud revenue will grow by a compound annual rate of 57 percent from fiscal 2018 to 2021 and reach 8.4 percent of the company’s total revenue in that time. Chan also says Alibaba Cloud will represent about 8 percent of the global infrastructure-as-a-service and platform-as-a-service markets by 2021.

Alibaba has consistently reported impressive e-commerce revenue growth, but Chan says the company is just beginning to tap China’s full potential. According to Chan, Alibaba can still help “digitalize” 85 percent of China’s remaining retail sector, and its Hema and Sun Art investments will help the company reach the 60 percent of Chinese consumers that are still offline.

Finally, Chan says Alibaba is well-positioned to grow its international footprint over time.

“With Alipay representing 54 percent mobile payment market and Taobao/Tmall serving one out of every three Chinese, overseas becomes the next frontier for growth to reach 2 billion consumers by 2036,” Chan says.

Jefferies isn’t the only Wall Street firm expecting big things out of Alibaba in 2018. MKM Partners analyst Rob Sanderson recently says MKM analysts “continue to view fundamentals for BABA [as] the best among the mega-cap internet stocks.”

If Alibaba does, in fact, follow Amazon’s path, BABA stock may have tremendous long-term upside for years to come. In the past four quarters, Alibaba has reported revenue growth ranging between 44 percent and 61 percent, nearly double Amazon’s 22 to 34 percent revenue growth range over the same period.

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