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Takeaway: We didn’t want to stay short this print, and beta has given us a decent exit point. Long-term bearish thesis remains the same.


  1. F1Q16 = LOW HURDLE: We’re specifically referring to the China Retail segment, where consensus is looking for 31% y/y growth vs. 39% in F4Q15.  We wouldn’t call this undue sell-side conservatism, but rather just stale estimates following the F3Q15 blow-up when consensus slashed estimates for the subsequent two quarters.  That said, BABA doesn’t need much to beat F1Q16 estimates, and with all the noise around the sell-off in Chinese stocks, we could see a relief rally on a good print.
  2. SETUP GETS WORSE THEREAFTER:  Consensus is assuming China Retail revenue growth accelerates on a y/y basis through the end of F2016, and those estimates may climb following the F1Q16 release.  GMV growth is naturally slowing, and being exacerbated by the influx of a weaker consumer, while sputtering Tmall Mix shift is pressuring commission growth.  That said, to produce accelerating revenue growth in China Retail, BABA will need accelerating y/y growth in Marketing take-rates, which will a major challenge.
  3. THE MOBILE DEBATE:  The bull case is that mobile take-rates will ascend to desktop levels.  Our bear case is that one grows at the expense of the other, and the two will most likely converge rather than meet up top.  Reason being is that we attribute the rise in mobile take-rates to rise in mobile user mix since the bulk of China Retail revenue comes from Marketing, and most of that is CPC.  That said, Mobile traffic is already breaching 80% of total traffic, so that mix shift effect is ultimately capped moving forward.  For more detail, see the note below.

BABA: The Mobile Debate

03/04/15 10:34 AM EST

[click here]

Let us know If you have any questions or would like to discuss in more detail.

Hesham Shaaban, CFA