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Alibaba: Despite Government Probe, the ‘Buy’ Thesis Remains IntactThe Chinese government‘s crackdown on Alibaba (BABA) continues. Following the regulators’ suspension of sister fintech company Ant Group’s IPO, the government has now launched an antitrust investigation into alleged monopolistic practices.The probe centers around allegations the company coerces merchants to sign forced exclusivity agreements, thereby stifling competition.As a result, shares of Alibaba have come under pressure and a sell-off ensued following the investigation’s announcement.For Raymond James analyst Aaron Kessler, the latest development is hardly surprising. The analyst previously warned that the recent November antitrust guidelines for internet platforms put Alibaba at risk due to the company’s practice of exclusive relationships.However, the investigation has done nothing to dampen his investment thesis for Alibaba. In fact, while uncertainty remains as to the impact the probe will have on BABA’s topline, opportunity beckons following the stock’s pullback.“We believe the most likely outcome is the termination of these exclusive relationships though it is difficult at this time to quantify the potential revenue impact (e.g. consumers shifting buying to other platforms)’ the 5-star analyst said. Additionally, with shares down ~20% from recent highs and trading at ~16x 2021 CY marketplace EPS (based on our sum-of-parts analysis), we believe BABA is largely pricing in these concerns and we remain buyers of BABA at current levels.”Kessler’s Strong Buy rating comes with a $330 price target and implies handsome upside of 48% from current levels. (To watch Kessler’s track record, click here)Oppenheimer analyst Jason Helfstein is of a similar view. The analyst says that should the investigation’s conclusion go against BABA, the impact will “likely be less meaningful than expected.”“Based on our understanding,” Helfstein added, “Most exclusive merchants on BABA maintain their exclusivity primarily due to BABA's strong eCommerce ecosystem, and BABA's exclusivity practice plays a less meaningful role.”Plus, the 5-star analyst reminds investors that while the government might be tightening the reins, the new rules are intended to foster “longterm sustainable growth of the sector through promoting fair competition, not to suppress it.”The government is also supportive of continued investment by large companies in areas such as cloud, AI, smart transportation, Internet healthcare and online education, which are “all BABA's key investment areas.”Accordingly, Helfstein’s rating stays an Outperform (i.e. Buy), while his $330 price target is identical to Kessler’s. (To watch Helfstein’s track record, click here)All in all, Alibaba might be worrying the Chinese regulators, but the Street has zero concerns when considering its trajectory. The stock has Buy ratings only – 22, in fact. BABA's Strong Buy consensus rating is backed with a $340.65 average price target. Investors could be locking in gains of ~53%, should the figure be met over the next 12 months. (See BABA stock analysis on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
