Alibaba: Despite Positive Results, Still Undervalued

Seekingalpha2023-08-25

Alibaba is seen as a good mid-term investment opportunity due to its diversified business, strong balance sheet, and restructuring plans to spin out separate business segments.Spinning out three ...

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Comments

Miker9110
2023-08-26
Miker9110
G
Merdeka1981
2023-08-25
Merdeka1981
Info is correct, but the stock lacks the power to charge upwards leh.
ZackChia
2023-08-25
ZackChia
Should be happy its still being valued lol
neo26000
2023-08-25
neo26000
Issue is not with Baba. Issue is with the name...change name to BabaWinfast... sure rise 30% in one day.

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The company has a diversified business with a strong balance sheet and buy-back program in place. Alibaba is in the process of restructuring with the aim to spin out at least three businesses and unlock their value as separate business segments. With a current market value of $234bil. In US dollars and an enterprise value of $157 billion, I see the company is undervalued either based on a cash flow generation basis or on the sum of the parts basis. Even though Alibaba is not completely immune to macroeconomic shocks, it has the ability to strengthen its market position and positively benefit from the current negative environment. Investors patient enough to stick with this thesis should benefit along with the company.BloombergUnlocking The Value Through Spinning Out BusinessesAlibaba is in the process of spinning out three business units in the short term and possibly three other units in the longer term. A listing of logistics company Cainiao, cloud unit Alibaba Cloud, and grocery retail chain Freshippo, could unlock major value, which is currently ignored by the market. I see this as a smart strategy because once the business units are listed as separate companies, it will be easier for the market to value them. Additionally, the company has initiated to find an external financing for Alibaba International Commerce segment, consisting of Lazada, Trendyol, and AliExpress. These businesses are at the early stage of growth, which is always capital intensive. New partners either in the form or debt financing or equity investing would save Alibaba a lot of capital, which could be reinvested into Alibaba's main e-commerce business back at China or returned back to shareholders in the form of special dividend or possibly buy-backs. From all the business units going public, Alibaba Cloud will attract the most attention. It is the fourth-largest cloud provider in the world, with a 6% global market share. If similar multiples apply for Alibaba Cloud as for its Chinese competitors, Alibaba Cloud could be worth somewhere around 46 billion US dollars. That is more than 20% of total Alibaba's market cap.Sum Of The Parts ValuationThere are several reasons why the market is under-appreciating Alibaba's assets. The first reason has to do with the market applying China's macro discount. However, Alibaba has been able to deliver solid results in 1Q FY24 with revenues growing 14% year over year, despite the negative macro environment persisting. Secondly, investors usually don't like big holding structures. That's why they often value the whole company lower than it would be valued as a set of unique businesses. Regardless of the negatives just mentioned, I believe that in the mid-term, fundamentals eventually prevail. To correctly value Alibaba, investors could either use Discounted Cash Flow analysis or Sum of The Parts valuation. In this case, I believe that Sum of The Parts valuation is a more suitable valuation tool because it better reflects the value of separate business lines. To set up a proper peer group for each business, it is important to not only choose companies from the same industry but also take into account similar growth and risk characteristics of peer group companies. That's why I think that the multiple EV/Sales for PDD Holdings (PDD) much better represents the value of Taboa and Tmall units, than for example, Vipshop Holdings (VIPS) or JD.com (JD), both suffering from anemic growth forecasts.Annual reports, own workBased on the multiples of peer group companies, I forecasted possible multiples for every segment adjusted for estimated growth. Category Other revenues are the mix of retail businesses and AI/Cloud businesses. For this category, I used the multiple of 1.3x EV/Sales which should be conservative enough for the businesses it contains. The sum of all business segments is the total Enterprise Value of Alibaba. Enterprise Value, or the value of operating assets was subsequently adjusted for net cash, the value of employee options, and a 33% equity stake in Ant Group. Final implied value per share resulting from this calculation was at $151, 71% above the current market price. Current market price should leave a sufficient margin of safety for investors willing to act on the valuation today.SummaryAlibaba seems fundamentally undervalued, and spinning out some of its businesses could unlock substantial value for investors. For investors, IPO's of Alibaba Could, Freshippo, and Cainiao Logistics will serve as a litmus paper for better understanding the value of the whole company. Alibaba has a strong balance sheet, a buyback program in place, and has a leading position in several businesses it operates. For investors with a globally diversified portfolio, Alibaba could be an interesting opportunity at this price.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":212854061351120,"gmtCreate":1693006299884,"gmtModify":1693006304113,"author":{"id":"3567752887434518","authorId":"3567752887434518","name":"Miker9110","avatar":"https://community-static.tradeup.com/news/376b8215951358aaecd7891f086a6dad","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3567752887434518","authorIdStr":"3567752887434518"},"htmlText":"G","listText":"G","text":"G","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212854061351120","repostId":2361961387,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":212649892479024,"gmtCreate":1692956306203,"gmtModify":1692956311061,"author":{"id":"4102568791638160","authorId":"4102568791638160","name":"Merdeka1981","avatar":"https://community-static.tradeup.com/news/370fc16a4d1090b47fe92034808ebbdd","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":5,"crmLevelSwitch":0,"idStr":"4102568791638160","authorIdStr":"4102568791638160"},"htmlText":"Info is correct, but the stock lacks the power to charge upwards leh.","listText":"Info is correct, but the stock lacks the power to charge upwards leh.","text":"Info is correct, but the stock lacks the power to charge upwards leh.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212649892479024","repostId":2361961387,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":212646530035872,"gmtCreate":1692955595227,"gmtModify":1692955599947,"author":{"id":"4088465576185570","authorId":"4088465576185570","name":"ZackChia","avatar":"https://static.tigerbbs.com/90f82bfb7f8bb1e887247a1d0c7bef93","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"4088465576185570","authorIdStr":"4088465576185570"},"htmlText":"Should be happy its still being valued lol","listText":"Should be happy its still being valued lol","text":"Should be happy its still being valued lol","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212646530035872","repostId":2361961387,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":212644835659800,"gmtCreate":1692955069521,"gmtModify":1692955075252,"author":{"id":"4131703342800552","authorId":"4131703342800552","name":"neo26000","avatar":"https://community-static.tradeup.com/news/11d50ec0d6202770a8629aa7f06a5d4f","vip":1,"hat":"https://static.tigerbbs.com/4c5ceab71416b120bab4604c0754b52a","crmLevel":9,"crmLevelSwitch":1,"idStr":"4131703342800552","authorIdStr":"4131703342800552"},"htmlText":"Issue is not with Baba. Issue is with the name...change name to BabaWinfast... sure rise 30% in one day.","listText":"Issue is not with Baba. Issue is with the name...change name to BabaWinfast... sure rise 30% in one day.","text":"Issue is not with Baba. Issue is with the name...change name to BabaWinfast... sure rise 30% in one day.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212644835659800","repostId":2361961387,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":27,"commentSize":4,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2361961387"}