RBC Cuts Alibaba Estimates After Hearing Management Speak

In a report published Wednesday, RBC Capital analyst Mark S. Mahaney reiterated an Outperform rating on Alibaba Group Holding Ltd. (NYSE: BABA), while lowering the price target from $110 to $105. The revenue and EPS estimates have also been lowered, following the management's comments at the recent investor conference.

"At an investor conference last week in Beijing, BABA management made two comments indicating incremental adjustments to the business model," Mahaney reported, adding that "the company suspended its online lottery sales in late February, with the June quarter being the first quarter where the company will experience a full quarter impact."

Alibaba has also reduced its fixed advertising fee and commission charge on its group-buying website, Juhuasuan. Since this change was made in early April, a full quarter's impact will only be experienced in June.

According to the RBC Capital report, "BABA made this adjustment to extend its market leadership and attract and retain more advertisers. We assume competitive pressures were also at play….they usually are when companies reduce fees."

Despite existing headwinds, the analyst believes that Alibaba is the leading Chinese ecommerce platform, with consistent GNV & Buyer growth rates, high EBITDA margins, and significant free cash flow generation and option value in terms of its non-retail revenue stream, both in China and internationally.

The June quarter Mobile GMV and revenue estimates have been reduced to reflect the recent announcements by the company. The FY16 Mobile and Desktop take-rate estimates have also been lowered, along with the GMV, revenue and EPS estimates for the year.