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BABA Stock: Technical Indicators Show Alibaba Group Holding Ltd Breakout

Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding Ltd shares have spiked this week. The stock is at the key resistance zone of the previous rally high. Technical analysts would say the next few sessions are crucial. If Alibaba can break out of this zone, further upside awaits the stock.

Alibaba has had a rough 2015. Shares are down close to 20% year to date. But things began to turnaround since October. Better than expected third quarter results on the back of strong mobile growth helped lift sentiment on Wall Street. Will the recent strength in the stock sustain? Analysts at Trefis Research list out three key triggers that investors need to watch out for.

Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding battles China fall

Trefis reckons a couple of factors could weigh on Alibaba Group Holding Ltd ’s dominance in the Chinese e-com market over the next couple of years. Firstly, Alibaba’s share of B2C market is likely to jump from 40% in 2013 to around 60% by 2017. However, its share of the consumer-to-consumer segment is expected to drop from 60% to 40%.

This change in dynamics could be challenging for Alibaba considering that its hold over the Chinese C2C market is substantial. Moreover, rivals are catching up fast, with JD.com proving to be a major source of worry. As such, Alibaba could be in for some tough time in the very market that propelled it to stardom. Trefis analysts forecast Alibaba’s Chinese market share by GMV to decline from 73% in 2014 to 61% by 2018.

International growth may offset domestic weakness

Trefis Research expects Alibaba Group Holding Ltd ’s global revenues to increase conservatively from $1 billion in 2014 to about $3 billion in 2022. Alibaba’s overseas plans are backed by robust cash reserves, strong brand recognition, and big demand for Chinese goods.

The Chinese market is in the midst of a slowdown. And intensifying its international foray makes sense to Alibaba. The online retailer has recent moved in to markets including Europe, Russia, Brazil and India. And if initial trends are any indication, the strong demand for the relatively cheaper Chinese goods, could drive growth in the medium to long term.

Margins likely to come under pressure

Trefis forecasts Alibaba’s EBITDA margin to rise from 55% in 2014 to 60% by 2018. But warns investors the scenario might not unfold in the event of increased investment in its various units. Rising capital expenditure in growth segments like cloud services and video business could impact margins.

Shares of Alibaba Group Holding Ltd closed Wednesday at $84.99. The stock is up 30% in the past three months.

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