On October 20th, I wrote a post for the IPO Playbook on why Alibaba (BABA) looked poised for a nice short-term gain. The two key reasons: There would be a snap back from the market correction and there would be a boost from the expiration of the quiet period.
And yes, things turned out pretty well. Consider that Alibaba stock is up about 12% since then.
The post-correction rally was much more than expected (it’s as if nothing bad ever happened!), but the impact of the quiet period was more predictable. All IPOs require a quiet period, which prohibits a company’s underwriters from publishing analyst reports for 40 days after a public offering. The main reason is to help alleviate some of the inevitable hype.
Yet the quiet period can sometimes be a way to make a trade, especially for hot deals like the IPO for Alibaba stock. So it seemed almost inevitable that the analysts would be effusive for Alibaba.
Here’s a look at some of the analyst reports from the underwriting group:
As for those analysts that were not part of the deal, there was lots of bullishness too:
Now there were some reports that provided somewhat dour views on Alibaba stock, such as Goldman Sachs (GS). The firm put out a “neutral” rating. Although, the two-year view was certainly bullish, with a $133 price target.
There were also a few analyst reports that set price targets below the current valuation on Alibaba stock. For example, Macquarie’s price target is at $88 and Susquehanna’s is at $90.
As I noted in my October post, I think the long-term prospects for Alibaba stock look bright. Let’s face it, the company has dominant positions in fast-growing markets in China like ecommerce, cloud computing and payments. More importantly, Alibaba has built a powerful ecosystem of partners, which allows for tremendous barriers to entry.
The company has also made a successful transition to mobile. Consider that the Mobile Taobao App is the most popular in China for ecommerce, with more than 188 million MAUs (monthly active users). In fact, Alibaba accounts for 86% of total mobile commerce revenues or about $71 billion.
That all sounds good, but investors should still be cautious. During the past few months, China’s economy has been decelerating. And given the massive scale of Alibaba, there could be an adverse impact on its own growth ramp.
Alibaba has also been aggressive with its investments and acquisitions. While such moves are smart to build a sustainable business, they have weighed on the financials. During the past year, operating profit margins have gone from 50.3% to 43.4%. If this continues, Wall Street could get antsy. After all, this was the big concern with Facebook’s (FB) recent guidance for its ramp in expenses.
In other words, it looks like a good time to take some profits on Alibaba stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.