Alibaba (BABA) Valuation: Spotting Opportunities in a Discounted Market

With a market capitalization of $187.28 billion, Alibaba Group Holding Limited (BABA) It is a China-based technology company that provides the infrastructure and marketing reach to help sellers, brands, and other businesses connect with users internationally. BABA stock last Friday Recorded 7 consecutive risesWe set a record for the longest winning streak in one year.

Shares of the e-commerce giant have surged more than 3% over the past month, compared with a nearly 3.3% decline in the S&P 500’s stock. The stock has also risen about 1% over the past five days, surpassing the S&P’s marginal drawdown.

From a valuation perspective, BABA is trading at a non-GAAP Forward P/E multiple of 9.03, which is 41% below the industry average of 15.32. Likewise, the company’s forward EV/EBITDA and EV/EBIT are 5.46x and 8.79x, respectively, which are better than the industry averages of 9.42x and 13.57x.

Additionally, based on forward price/book value, the stock is trading at 1.33x, which is 43.2% lower than the industry average of 2.34x.

Alibaba’s stock trades at a discount compared to its competitors and could be an interesting opportunity for value-oriented investors. However, it is important to analyze several quantitative and qualitative factors before making an investment decision.

Let us now discuss BABA’s basic principles and growth prospects in detail.

Financial Performance Overview

For the fourth quarter of fiscal 2024, which ended December 31, 2023, BABA’s revenue increased 5.1% year-over-year to $36.67 billion. Alibaba International Digital Commerce Group’s sales increased by 43.8% year-on-year, while Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group increased by 23.7% and 18.3%, respectively.

The tech giant’s adjusted EBITA rose 1.5% year over year to $7.44 billion. However, non-GAAP net income for the quarter decreased 4.1% year-over-year to $6.75 billion. Non-GAAP earnings per share were $0.33, down 2% year-over-year.

Alibaba’s total assets amount to $256.8 billion, with significant reserves of cash, investments, and operating assets. The company reported cash and cash equivalents of $35.89 billion and short-term investments of $42.31 billion.

“We had a solid quarter, executing a focused strategy across the organization. Our top priority is to reignite growth in our core businesses of e-commerce and cloud computing. “We will strengthen our investments to improve the core experience for our users to drive the growth of Taobao and Tmall Group and strengthen our market leadership next year.” said Eddie Wu, CEO of Alibaba Group.

“We will also focus our resources on developing our public cloud products and maintaining strong growth momentum in our international commerce business,” Wu added.

Expansion of share repurchase program

BABA announced that its Board of Directors has approved a $25 billion increase to its share repurchase program through the end of March 2027. For the quarter ended March 31, 2024, the Company A total of 524 million shares of common stock were repurchased. The total amount is $4.8 billion.

Alibaba purchased approximately 1.249 billion shares for a total of $12.5 billion in the fiscal year ended March 2024. As of March 31, 2024, the number of shares of common stock issued by Chinese e-commerce companies was 19.469 billion, a net decrease of 520 million shares compared to December 31, 2023, and a net decrease of 2.6% in the number of issued shares after calculating issued shares. Under ESOP.

As of March 31, 2024, the Company had $31.9 billion available under its share repurchase program, effective until March 2027.

The increase in BABA’s share repurchase program demonstrates BABA’s confidence in its business and cash flow prospects.

“Through continued share repurchases, we have achieved increases in EPS and cash flow per share, while also reducing the number of shares outstanding,” said Alibaba Group Chief Financial Officer Toby Xu.

reorganization

Last year, Alibaba went through major changes, including restructuring.

Daniel Zhang, former CEO of Alibaba Group, who became acting general manager of the cloud business in December 2022, suddenly resigned in September of last year.

In March 2023, BABA announced plans to: Divide the business into six separate units This is an effort to create shareholder value and improve competitiveness. The company’s restructuring has resulted in the creation of six separate business units, some of which may go public and raise external funding.

Among the companies receiving attention for initial public offerings (IPOs) are Alibaba’s cloud division, Cainiao logistics division, and Freshippo grocery division. But Alibaba The decision was made to cancel the highly anticipated spin-off. Last year, we announced our cloud computing business.

BABA Chairman Joe Tsai noted in the last earnings call that the company will explore separate financing options, but that creating synergies within the Alibaba ecosystem remains a priority, reflecting the group’s overall values. Tsai also emphasized that Alibaba is not in a hurry to pursue such a deal and will consider market conditions before proceeding.

strategic initiative

On April 17, 2024, Alibaba.com, a leading global business-to-business (B2B) e-commerce platform, We launched our affordable and customizable Logistics Marketplace.We provide U.S. small and medium-sized enterprises (SMEs) with access to affordable, customizable logistics services, allowing them to streamline their supply chains and expand more easily across the globe.

On January 9th, Alibaba.com released the latest news. Smart Assistant Features Powered by AI at CES in Las Vegas, Nevada. Smart Assistant is an AI-powered sourcing tool that helps newcomers and seasoned entrepreneurs discover new opportunities, stay on top of trends, seamlessly track orders, and more in the dynamic world of global commerce.

Also in the same month, Alibaba Cloud unveiled its next-generation products. Elastic Compute Instance Specification Family ECS g8i. ECS g8i instances serve customers in industries such as gaming, e-commerce, finance, healthcare, and enterprise services for deep learning, AI inference training, and big data.

On October 31 last year, Alibaba Cloud released Tongyi Qianwen 2.0, its latest large language model (LLM). It has been significantly upgraded compared to the previous version released last April. Tongyi Chenwen 2.0 Demonstrates outstanding ability It helps with understanding complex instructions, copywriting, memorization, reasoning, and preventing hallucinations.

With this upgraded version of its AI model, the company is expected to compete with its US competitors, including: Amazon.com (AMZN) and Microsoft Corporation (MSFT).

Alibaba also unveiled its GenAI service platform, which allows companies to use data to build self-generated AI applications.

conclusion

BABA reported mixed financials last quarter, but announced it was increasing the size of its share repurchase program by $25 billion to create greater value for shareholders. The strengthening of the share repurchase program demonstrates the company’s confidence in its business prospects and cash flows.

furthermore, AliExpress orders increased by 60%. In the third quarter, compared to the same period last year. This strong performance contributed to Alibaba International Digital Commerce Group’s revenue growing 44% year-on-year, exceeding market expectations for the sixth consecutive quarter. ‘Ali Express’ selecta premium service launched in March 2023, is the driving force behind this strong growth.

Alibaba’s Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group grew about 23% and 18%, respectively.

Over the past five years, BABA’s revenue and EBITDA have grown at a CAGR of 21.9% and 16%, respectively. During the same period, the company’s net profit and EPS grew at a CAGR of 7.6% and 7.8%, respectively. During the same period, total assets increased by an average of 14.7% per year.

Furthermore, BABA’s trailing 12-month EBIT margin of 13.74% is 79.8% higher than the industry average of 7.64%. Moreover, the stock’s trailing 12-month net income margin and leveraged FCF margin are 10.81% and 15.77%, respectively, which are significantly higher than the industry averages of 4.57% and 5.53%.

Chinese internet giant BABA is expected to report financial results for the quarter and fiscal year ended March 31, 2024, before markets open on May 14, 2024. Analysts expect BABA’s fourth-quarter revenue to increase 2.6% year-over-year. 30.37 billion dollars. However, the company’s EPS for the same period is expected to be $1.43, down 6.3% from the previous year.

The Street expects BABA’s revenue and EPS to increase to $130.09 billion and $8.46 in fiscal 2024, up 5.4% and 9.1%, respectively, from the prior year.

Going forward, the China-based technology company’s main focus will be to revitalize the growth of its core businesses centered around e-commerce and cloud computing. The company plans to increase investments to improve users’ core experience, drive the growth of Taobao and Tmall Group, and strengthen its market leadership in the coming year.

Alibaba has a significant amount of net cash and investments on its balance sheet, providing a safety cushion for investors. This strong cash position can be used for strategic investments, acquisitions, and business expansion, improving the company’s growth prospects over the long term.

In conclusion, BABA’s current discounted market position presents an attractive opportunity for value-oriented investors. Conducting a thorough analysis of a company’s financial health, growth prospects, and competitive environment can help investors make informed investment decisions and capitalize on the stock’s long-term upside potential.