Option Trade 
Alibaba Group Holding Ltd (NYSE:BABA) Calls
Tuesday, May 16, 2017

** OPTION TRADE: Buy the BABA JULY 21 2017 125.000 CALL at approximately $4.40. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.75.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Alibaba Group Holding Ltd (NYSE:BABA), an online and mobile commerce company, reports before the market open Thursday, for its fiscal fourth quarter.

The analyst consensus looks for Alibaba to report revenue of $5.2 billion, or 35.87 billion yuan, up 48% in local currency from the year-ago quarter. The consensus on adjusted earnings is 66 cents, up 50% in local currency.

Needham analyst Kerry Rice has a buy rating on Alibaba and price target of 135, up from a recent target of 125. Rice thinks two factors could drive an upside to Alibaba expectations. One is that China e-commerce retail sales accelerated in the first quarter and that an increasingly personalized user experience should result in higher sales.

Alibaba follows the earnings of JD.com (JD), its closest rival in the e-commerce field. JD.com topped estimates and guided second-quarter revenue above views.

Last quarter, the Chinese e-Commerce giant delivered a positive earnings surprise of 28.24%.

For the last year, shares of Alibaba Group have been steadily treading higher. The stock returned 51.7% compared with the categorized Electronic Commerce industry's gain of 43.2%.

Alibaba Group Holding has a 12 month low of $73.30 and a 12 month high of $121.49. The stock has a market cap of $301.68 billion, a PE ratio of 55.89 and a beta of 2.73. The firm has a 50 day moving average price of $112.85 and a 200-day moving average price of $101.45.

Influencing Factors to Consider

Alibaba's third-quarter fiscal 2017 earnings of $1.09 per share exceeded the Consensus Estimate. Solid growth in its core e-commerce business and growing cloud computing services led to better-than-expected results. Management expects these factors to continue driving results for the upcoming quarter.

Revenues also increased sequentially as well as year over year. The increase was driven by continued revenue growth in China's commerce retail business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).

The Chinese e-Commerce company, which operates as a platform for third-party sellers, neither sells goods directly to merchants nor holds inventory. Alibaba Group's strong market position in China, uninterrupted growth in mobile business, unfazed improvement in commerce retail business and improving gross merchandise value should boost fiscal fourth-quarter earnings.

Additionally, Alibaba is expected to continue witnessing an increase in monetization rates. The company is building its online marketing inventory on both mobile and PC. Also, due to higher monetization rate, the company's profits are expected to increase.

Analysts and Hedge Funds Opinions

Analyst Kerry Rice of Needham & Co. raised its price target for the Chinese e-commerce company to 135 from 125, keeping a buy rating, on optimism about its fiscal Q4 results to be announced before the open on May 18.

In his report, Kerry said that while Alibaba was traditionally transaction-focused, "we believe it is increasingly becoming a technology solution provider in areas such as marketing, data analytics, logistics operation, and cloud computing."

Barclays PLC lifted their price target on shares of Alibaba Group Holding from $130.00 to $132.00 and gave the company an “overweight” rating in a report on Wednesday, May 10th.

Robert W. Baird reaffirmed a “neutral” rating and set a $37.00 price target on shares of Alibaba Group Holding in a report on Wednesday, January 25th.

Shares of Alibaba Group Holding Ltd have earned a consensus recommendation of “Buy” from the thirty-five brokerages that are currently covering the stock.

One analyst has rated the stock with a sell recommendation, two have issued a hold recommendation, twenty-six have assigned a buy recommendation and two have issued a strong buy recommendation on the company. The average 1-year target price among brokers that have covered the stock in the last year is $125.93.

Reliance Trust Co. of Delaware raised its stake in Alibaba Group Holding by 31.5% in the first quarter. Reliance Trust Co. of Delaware now owns 10,216 shares of the specialty retailer’s stock valued at $1,101,000 after buying an additional 2,448 shares during the last quarter.

Harvey’s Options Volatility Indicator


An earnings beat is very much on the cards and the stock is trading at an all-time high going into the earnings release.

The stock is expected to continue its northward march after the earnings. The Options data also suggests traders are betting on more upside from here. BABA stock looks set to fly higher after the earnings.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the BABA JULY 21 2017 125.000 CALL at approximately $4.40. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.75.

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