Weekly Internet Notes: Alibaba, Amazon, Facebook and Groupon

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BABA: Alibaba Group logo
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Alibaba Group

E-commerce companies are bracing up for the important holiday season and many of them have started offering deals for the Thanksgiving season earlier than usual to stay ahead of the competition. Alibaba continues to take the Wall Street by storm, with its recent bond offering getting over-subscribed by more than six times. In addition, Facebook has recently launched a new app further diversifying its mobile portfolio. Here are some details.

Alibaba

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Alibaba (NASDAQ:BABA) recently raised $8.0 billion on the U.S. debt market through a six-tranche issuance. This bond offering met with unprecedented demand, as the company received orders worth $57 billion, taking the yields lower than initially set levels. The proceeds from the sale, along with cash in hand will be used to refinance existing credit agreements. This issuance represented the largest dollar denominated offering by an Asian company, surpassing the recent bond sale of $6.5 billion by Bank of China. Alibaba’s debt attracted an investment grade of A+ by S&P and Fitch, and equivalent A1 rating from Moody’s. [1]

On a separate note, Alibaba recently announced plans to launch an international version of its Taobao marketplace, which will be available in several languages and cater to shoppers worldwide. International expansion represents a key driver for Alibaba’s business and we will be following this development more closely to understand its impact on valuation.

We estimate revenue of over $13 billion for Alibaba in fiscal 2015, and a non-GAAP diluted EPS of $2.49. We maintain a $93 price estimate for Alibaba’s shares, which is roughly 15% below the current market price.

Amazon

Last week, Amazon (NASDAQ:AMZN) took measures to increase the adoption of its products and services. It recently announced that Kindle Fire owners will receive six months of free subscription to ‘The Post’, after which they will have to pay for the news. Amazon reportedly is also planning to launch a new ad-supported video-streaming service in 2015, which will be marketed independently from its Prime membership. We think this initiative could boost Amazon’s growth in the media segment, as the service has the potential to become competitive to Netflix in the long-run. [2]

Amazon will begin offering deals for the Thanksgiving season earlier than usual on Friday, November 21, a week before Black Friday. This step to move ahead of the competition will spur demand on the platform during the holiday season (which accounts for around one-third of its annual sales).

We forecast revenues of around $90 billion for Amazon in 2014, and diluted EPS of $0.72. We have a $303 price estimate for Amazon’s shares, which is roughly 10% below the current market price.

Facebook

Facebook (NASDAQ:FB) unveiled a new app ‘Facebook Groups’ on Android and iOS this week. There are over 700 million users who use Facebook Groups on the core platform, and this new app will allow easier connection between group members on mobile. We think this move represents Facebook’s efforts to decouple its various applications on the mobile platform to maximize the potential of each service. Over the long-run, Facebook could build these apps as separate businesses if they gain popularity. It has achieved success with its Messenger app, which now boasts around 500 million monthly users, and it will try to achieve the same goal with this new application. [3]

We estimate revenues of around $12.4 billion for Facebook in 2014, and non-GAAP diluted EPS of $1.65. We maintain a $64 price estimate for Facebook’s shares, which is around 15% below the market price

Groupon

Groupon (NASDAQ:GRPN) recently announced the acquisition of Swarm Mobile, a start-up that helps retail outlets with customer analytics and engagement tools. The acquisition is expected to expand Groupon’s push into local commerce, and will also help refine its merchant operating system. Groupon plans to expand its merchant network significantly and has launched features including Pages and Gnome to achieve this goal.

Groupon has also launched Black Friday deals earlier than usual, and has come up with attractive discounts to enhance the demand for its goods products. [4]

We estimate revenues of around $3.2 billion for Groupon in 2014 and non-GAAP diluted EPS of $0.05. We maintain a $7.1 price estimate for Groupon’s shares, implying a discount of less than 5% to the current market price.

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Notes:
  1. Alibaba Sells $8 Billion of Bonds in Company’s Debut Sale, Bloomberg, November 21, 2014 []
  2. Amazon plans a streaming-video alternative, NYPost, November 21, 2014 []
  3. Facebook Revamps Groups Feature with New App, Inc., November 19, 2014 []
  4. Groupon Black Friday Deals Also Starting Early, PCMag, November 20, 2014 []