Alibaba Group Holding Ltd. (BABA) saw its shares rise after the e-commerce giant announced a change in its fee policy for merchants to a percentage-based structure. The policy change, which was first reported by the Chinese local media LatePost, was conveyed to merchants on Friday.
Following the release of the news, the U.S.-listed shares of BABA were trending higher by more than 3% in Monday’s pre-market trading. Also, the stock surged by as much as 5.8% in Hong Kong, marking its most substantial gain in two months.
New Service Fee Announcement
Alibaba will now implement a basic software service fee of 0.6% on confirmed transactions for merchants on both its Tmall and Taobao platforms, starting September 1. Currently, Alibaba charges a fixed annual fee to Tmall merchants, which will be waived once the new policy comes into effect.
Also, Alibaba will provide vendors with support measures, including adjustments in traffic allocation criteria and free refund policies.
This policy change indicates a strategic shift in Alibaba’s revenue model.
Boosting BABA’s Core Merchant Revenue
Earlier, Alibaba earned the majority of its Taobao and Tmall revenue only through customer management fees, which merchants paid to advertise their products.
But now the new policy will help the company earn more service fees from merchants, thereby enhancing Alibaba’s core merchant revenues.
Is Alibaba Stock Expected to Rise?
Jefferies analysts believe that the new fee policy will act like a catalyst, driving the stock price higher. They stated, “We view the 0.6% software service fees starting in September as positive to core merchant revenue considering the new arrangement applies to both Taobao and Tmall.”
Turning to Wall Street, analysts have a Strong Buy consensus rating on BABA stock based on 13 Buys and three Holds assigned in the past three months, as indicated by the graphic below. The average BABA stock price target is $104.06, implying an upside potential of 35.97%.
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