NOMURA - Alibaba Group

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Mobile development surprised; expectation on 11th November

promotion; raise TP to USD124

Despite unfavourable seasonality, Alibaba witnessed a solid sequential GMV

(gross merchandise volume) and revenue growth of 11% and 7%,

respectively, in the September quarter. Mobile development in its China retail

market place was the key highlight for 2Q15. Mobile GMV and mobile

revenues reached 36% and 29% of total within the China retail market place,

respectively, up from 33% and 19% last quarter. The mobile monetization rate

reached 1.87%, up from 1.49% in FY1Q. We believe the substantial progress

in mobile monetization came from the higher commission rate for Tmall mobile

than Tmall PC due to a mix of higher-commission product categories in

mobile, as well as improving the mobile ad take rate. Thus, we are more

confident about mobile monetization rate pick-up and expect it to reach 1.92%

and 2.65% in FY15 and FY16, respectively.

After the quarterly results, the next catalyst could be the 11th November sales

campaign. We believe the market is expecting CNY50bn GMV (vs. CNY35bn

last year) (based on our recent survey among investors), which we believe

Alibaba has a decent chance to beat and announce CNY55-60bn GMV this

year.

Fine-tuning estimates

Alibaba reported a strong FY2Q revenue of CNY16,829mn (54% y-y, 7% q-q),

which was 5% above consensus and 10% above our estimate. GMV in the

China retail marketplace reached CNY556bn (11% q-q and 49% y-y growth).

Due to better-than-expected mobile development, we raise our FY15/FY16F

sales by 6%/7%. Offset by rising spending on mobile marketing, we lower

FY15F non-GAAP net profit by 3%, but raise FY16F by 3%. Hence, we raise

our SOTP-based TP to USD124, implying 39x FY16F P/E (EPS: USD3.2) or

27x FY17F P/E (EPS: USD4.6).