Alibaba Group Holding Limited

BABA Details

Alibaba Group Holding Limited (NYSE: BABA) is the world's largest online and mobile commerce company, measured by gross merchandise volume. It runs China's online marketplaces, such as Taobao (consumer-to-consumer) and Tmall (business-to-consumer). China commerce wholesale, international retail/wholesale marketplaces, cloud computing, digital media and entertainment platforms, Cainiao logistics services, and innovation initiatives/others are additional revenue sources. BABA has 2.72 billion American Depository Shares (ADS) listed and outstanding (each ADS representing eight ordinary shares).

Latest News:

• Olympic Winter Games Digitization: The International Olympic Committee's (IOC) digital initiatives paid off on February 22, 2022, as the Olympic Winter Games, Beijing 2022 successfully transferred its essential games technology services to Alibaba Cloud. The migration took place against the backdrop of the Covid pandemic to provide a safer and more inclusive experience for participants and audiences from all over the world.

Robust Q3FY22 Results:

• Rise in Revenues: The company's overall revenue climbed 9.72% year over year to RMB 242.58 billion in Q3FY22 (ended December 31, 2021), up from RMB 221.08 billion in Q3FY21, due to segment revenue growth in China commerce, Cloud, Local consumer services, and International commerce.
• Boost in Annual Active Consumers: For the twelve months ended December 31, 2021, the number of global BABA users totaled roughly 1.28 billion, an increase of approximately 43 million from the twelve months ended September 30, 2021.
• Strong Balance Sheet: The company had RMB 494.93 billion in cash and cash equivalents (including short-term investments) as of December 31, 2021, and RMB 139.64 billion in total debt.

Key Risks:

• Reliance on Alipay: Alipay handles most of BABA's payment processing and escrow services. Alipay was used to settle 70% of the Gross Merchandise Value (GMV) in the China retail marketplace in fiscal year 21. As a result, any deterioration in its quality, usability, convenience, or attractiveness could harm company operations and cash flow.
• Political and Regulatory Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (if the US authorities cannot satisfactorily audit the company for three consecutive years).

 Valuation Methodology: Price/Cash Flow Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

BABA's share price has remained on a bearish trend, fallen 54.33% in the past nine months and has made a new 52-week low today. We have valued the stock using the Price/Cash Flow multiple based relative valuation methodology and arrived at a target price of USD 115.00.

Considering the bearish trend of the stock, geopolitical risks, healthy balance sheet, market dominance, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 100.20, down 1.82% as of March 04, 2022, 11:38 AM ET. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

Three-Year Technical Price Chart (as of March 04, 2022, at 11:38 AM ET). Source: REFINITIV, Analysis by Kalkine Group

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.