BABA: Disappointing Stimulus, Slower Growth, And Geopolitical Tensions Making The Stock Cheap

seekingalpha11-24 13:02

Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.Management is actively investing in the business and ...

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nywles
11-25 07:06
nywles
Thanks

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a Buy rating is warranted.Management is actively investing in the business and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739837-baba-disappointing-stimulus-slower-growth-and-geopolitical-tensions-making-the-stock-cheap\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1515016050.SGD","symbol_name":"Blackrock Emerging Markets Equity Income A6 SGD-H","start_time":0,"source_url":"https://seekingalpha.com/article/4739837-baba-disappointing-stimulus-slower-growth-and-geopolitical-tensions-making-the-stock-cheap","article_id":"2485207198","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485207198","pubTimestamp":1732424555,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.Management is actively investing in the business and ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU1515016050.SGD":"Blackrock Emerging Markets Equity Income A6 SGD-H","LU0880133367.SGD":"UBS (LUX) EQUITY FUND CHINA OPPORTUNITY USD \"P\" (SGD) ACC","BK4502":"阿里概念","LU0501845795.SGD":"瑞银大中华区股票基金P Acc SGD","BK4505":"高瓴资本持仓","LU0052756011.USD":"TEMPLETON GLOBAL BALANCED \"A\" (USD) INC","IE00BFMHRM44.USD":"NEUBERGER BERMAN GLOBAL EQUITY MEGATRENDS \"A\" (USD) ACC","IE00B0JY6N72.USD":"PINEBRIDGE GLOBAL EMERGING MARKETS FOCUS EQUITY \"A\" (USD) ACC","BK4581":"高盛持仓","LU2226246903.HKD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT4\" (HKD) ACC","BABA":"阿里巴巴","LU1823568750.SGD":"Fidelity Global Technology A-ACC SGD","BK4548":"巴美列捷福持仓","LU0072913022.USD":"UBS (LUX) EQUITY FUND -  GREATER CHINA \"P\" (USD) ACC","BK4565":"NFT概念","LU1152091168.USD":"UBS (LUX) EQUITY FUND - CHINA OPPORTUNITY (USD) \"PM\" INC","LU0128525689.USD":"TEMPLETON GLOBAL BALANCED \"A\"(USD) ACC","LU1105468828.SGD":"Allianz Total Return Asian Equity AM DIS H2-SGD","LU0067412154.USD":"UBS (LUX) EQUITY FUND -  CHINA OPPORTUNITY \"P\" (USD) ACC","09988":"阿里巴巴-W","LU0310800965.SGD":"FTIF - Templeton Global Balanced A Acc SGD","BK4554":"元宇宙及AR概念","BK4503":"景林资产持仓","LU1282648689.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AMG\" (USD) INC","LU1152091754.HKD":"UBS (LUX) EQUITY FUND - CHINA OPPORTUNITY (USD) \"PM\" (HKD) INC","LU1048596156.SGD":"Blackrock Asian Growth Leaders A2 SGD-H","BK4531":"中概回港概念","LU0348814723.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"A\" (USD) INC  NC","LU0821914370.USD":"贝莱德亚洲成长领袖A2","BK4534":"瑞士信贷持仓","LU1688375341.USD":"贝莱德中国灵活股票基金","LU0797268264.HKD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT\" (HKD) ACC","BK4533":"AQR资本管理(全球第二大对冲基金)","LU1046421795.USD":"富达环球科技A-ACC","BK4587":"ChatGPT概念","BK4558":"双十一","BK4575":"芯片概念","BK4535":"淡马锡持仓","BK4524":"宅经济概念","BK4220":"综合零售","LU0651946864.USD":"贝莱德新兴市场股票收益A2","LU0918141887.USD":"安联亚洲实际收益股票基金","BK4527":"明星科技股","LU1880383366.USD":"东方汇理中国股票基金 A2 (C)","LU1051768304.USD":"贝莱德新兴市场股票收益A6","BK4579":"人工智能","BK4588":"碎股","LU0348816934.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT\" (USD)","LU1046422090.SGD":"Fidelity Pacific A-SGD","BK4122":"互联网与直销零售"},"translate_title":"阿里巴巴：令人失望的刺激措施、增长放缓和地缘政治紧张局势使股价便宜","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BABA":0.9,"09988":0.6},"content_text":"Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.Management is actively investing in the business and repurchasing shares, with a focus on improving user experience and maintaining market share leadership.Despite challenges, BABA's cloud segment showed impressive growth in Adj. EBITA, and their diversified investments are expected to yield long-term benefits.Risks include debt for share repurchases, declining FCF, competitive pressures, and geopolitical uncertainty, but the current valuation offers a compelling risk-reward ratio.Alibaba (NYSE:BABA) is a company that is significantly undervalued, and some of this discounting is warranted due to geopolitical concerns and a slowdown in their core TTG segment. However, management is actively investing in their business and repurchasing shares in droves. I believe a Buy rating is warranted for BABA, and the only reason I do not have a Strong Buy rating is due to geopolitical uncertainty.BABA has been written about extensively (I believe it has a cult stock following by value investors). Technically, the Cayman Islands structure facilitates a Variable Interest Entity (VIE) arrangement, which allows Alibaba to comply with Chinese regulations prohibiting foreign ownership of certain internet and technology businesses while still raising capital from international investors. If you do decide to make an investment in BABA, you should be aware of this scenario.Company / Segment OverviewBABA is one of the “crown jewels” of China’s tech industry. It has 7 reporting units that I will briefly touch on. First, there is the Taboao and Tmall Group/TTG. This segment consists of all their e-commerce operations and generates most of the company’s revenue and adj. EBITA. Tmall is their B2C operations and Taobao is their C2C operations. The revenue model for TTG is that BABA provides the ecommerce platform where merchants of all sizes can come and sell their products to the domestic Chinese population. BABA charges fixed fees to merchants and recently implemented a 0.6% take rate fee on all Gross Merchandise Volume that is sold on their platforms.Next, we have BABA’s Cloud Intelligence Group. This consists of BABA’s cloud infrastructure and AI and machine learning solutions. This segment also includes SaaS offerings to help with content delivery and cyber security. This segment has underperformed investors expectations for reasons we will get into later. This is one way how BABA has tried to diversify their business model away from being a pureplay Chinese ecommerce business.The third segment is Alibaba’s International and Digital Commerce Group/AIDC. This is BABA’s international ecommerce offering. BABA has been focusing on expanding their offerings in Southeast Asia, the Middle East and Europe. BABA’s international approach is slightly different compared to PDD whose international business has been targeting the US market, avoiding tariffs by exploiting loopholes.The fourth segment is their Cainiao Smart Logistics segment. This segment includes the entire logistical operation of their various business segments. They also offer international logistic operations for other companies who require these services. While the financial performance may seem small compared to the other segments, Cainiao is extremely important to customer and merchant satisfaction and keeps the engine of BABA going.The fifth, sixth and seventh group are Local Services, Digital Media and Entertainment Group, and a catch-all “Other” group.What Happened in Q2 2025On November 15, 2024, BABA reported earnings for Q2 2025, and the market was not pleased with what it saw.The company missed on the topline by $500M, but beat on the bottom line, mainly due to the share repurchase program we will discuss in depth later.BABA Investor Presentation DataAs we can see in the above results, revenue only went up 1% in the TTG segment while adj. EBITA decreased 5% YoY. While the adj. EBITA margin for TTG is at 45%, the market is focusing on the 5% decrease. To be fair, BABA has been losing domestic market share to competitors like PDD and JD. This is forcing BABA to invest in their platforms, and may result in a merchant subsidy war with these competitors, if it hasn’t begun already. However, to have a 5% contraction in adj. EBITA while the Chinese economy is going through a property blowup, along with a disappointing stimulus response from the government, I find the TTG segment still quite impressive. While I do think we should temper growth expectations going forward, BABA’s TTG is still a phenomenal business.The cloud segment had a 7% increase in revenue, but adj. EBITA had a whopping 89% increase. I find these numbers impressive because this growth was achieved while the U.S. government has been deliberately suppressing China’s access to advanced chips which are critical to AI development.Some analysts have commented on how the revenue growth in cloud has been disappointing for BABA. I think these analysts are missing the nuance of this segment. Originally BABA was focusing on non-public cloud revenue projects. These projects were low margin, but were the main composition of revenue in this segment. Recently, BABA decided to transition the focus in cloud to higher margin public cloud products. This transition to public cloud products, while simultaneously weaning off the non-public business makes the revenue growth number look artificially lower than it should be. I advise investors to keep track of the growth in profitability in this segment. Again, an 89% jump in Adj. EBITA shows management was correct in pivoting. Management even spelled this out for us in their presentation.BABA Investor Presentation DataWhile the adj. EBITA margin for this segment was 9%, the investments in cloud infrastructure will help them achieve scale and cost efficiencies, expanding margins in this business over time.Management also highlighted how AI related product revenue has been growing by triple digits for the 5th Q in a row! I believe management has done extremely well pivoting their focus in cloud while managing their limited access to cutting-edge chips.BABA Investor Presentation DataSome analysts have also stated how they are concerned that BABA’s cloud growth is slower than stalwarts like AMZN and MSFT. While it is true these companies have a bigger and faster growing cloud business, none of them are going to be able to have the penetration into the Chinese economy as homegrown Chinese companies do. As China is likely to become more protectionist in key industries like AI (just as the United States is) BABA is likely to be an AI provider of choice for China, with increasing market share over time. To not be exposed to one of the most dominant ecommerce platforms in the world in the second-largest economy at the current price is foolish, and patient investors are likely to be rewarded.Like other analysts, I am disappointed in the decline of profitability in the AIDC segment. Even though revenues grew 29%, Adj. EBITA dropped 657%!Management stated that the reason for the massive decline in profitability is due to the investments in their cross border platform, improving delivery times and expanding the supplier base. I am concerned if BABA is getting into a subsidy price war with competition like PDD and JD. While I like BABA’s focus on Southeast Asia, the Middle-East and Europe, this segment’s profitability must be watched. If margins deteriorate further, the gains in revenue won’t mean much to shareholders.Another bright spot in the Q that surprised me was the 85% increase in adj. EBITA in their local services group which consists of Ele.me (domestic delivery services with a focus on food and groceries). The investments in scale for their delivery services have begun to result in cost efficiencies. Even though Adj. EBITA was negative in the Q, Local Services should be profitable to Adj. EBITA in the next Q and beyond.When you consolidate their results, BABA grew revenue by 5% but adj. EBITA declined 5%. I want to reiterate that this Q's performance was accomplished as the Chinese economy is still dealing with the property blowup, the disappointing Chinese government stimulus, and their cloud business being impacted by sanctions. All things considered I think the Q was satisfactory.What Was Said on the CallManagement gave some important feedback to analysts on the call that investors should be aware of.As stated before, BABA implemented a 0.6% GMV fee for transactions across all their services. However, this began on Sept 1, 2024, therefore the next Q is going to be the first Q where this fee will be fully reflected in the financial results.However, management also stated that they are offering rebates to SMEs using their platforms, and they canceled annual Tmall fees, so this could be a net negative effect in the short term. This confirms that BABA is subsidizing merchants on their platform. Management also stated, \"E-commerce competition remains intense, and we'll continue to invest in core user groups and product categories, increase investment in new users, and improve user retention\".Management also explained where they are focusing on their investment initiatives by investing in a diversified and cost-effective supply, improvement in user experience by improving aftersales service and logistic experience and the front-end UX. I believe these are appropriate investments and should help BABA to maintain market share leadership and stickiness of their platform. BABA still has over 46M 88VIP members, a double-digit increase YoY.The CEO stated that we could essentially consider that TTG is investing in another growth stage. I want to focus on this statement quickly. BABA, which is undoubtedly the leader of ecommerce in China today, is still focused on investing and growing their business. History has given examples of how companies get large and become complacent (to be fair, BABA did get a little complacent in the past). But this management team is focused on growing their core business, focusing investment on the user experience. I think the management team is one thing that separates BABA apart from the competition.In the Q, BABA repurchased 6% of the float YoY. They detail how they bought 30B RMB/4.1B USD in the Q. That is a reduction of 2% in the ADS float in one Q, 4.4% for the 1H! They also explained that they are being strategic, looking at technicals when purchasing these shares. They are trying to maximize this program and will likely keep a floor under the stock since they have over $22B left in the repurchase program.BABA Investor Presentation DataThis bazooka of a repurchase program, while the company remains FCF positive, will reward the patient shareholder.The final thing that stood out to me was that management stated they believe all of their segments are going to be at a breakeven point, or earnings will be accretive in two years or less. If management delivers on this, I believe the market will be forced to recognize the dominance of BABA and patient shareholders will be rewarded.RisksWhile I am overall bullish on BABA stock, there are some real risks with an investment in this company.First, is the use of debt to repurchase shares of the company, and the overall buildup of debt on the B/S.Normally, debt being raised to repurchase shares is a huge red flag. I would prefer the company use FCF to repurchase shares instead of interest-bearing debt. However, with BABA it makes sense based on 2 factors, what is the interest rate on the debt, and what is the EBT yield of the average purchase price of the repurchased shares. I use EBT since interest on debt is tax-deductible.The TTM EBT is $15.3B. The current market cap at the time of this writing is $203B or $87/ADS. That equals a 7.5% EBT/MC yield. In theory, if the debt BABA issues had an interest rate below that 7.5% EBT yield, they are making money on the spread between the debt and the repurchased shares.BABA Quarterly ReportBABA Quarterly ReportAs we can see above, the $5B of convertible debt BABA issued had a paltry interest rate at 0.5%. That $5B was then used to finance the repurchase program for this year. The average price per ADS (multiply the high and low prices by 8 and then adjust for the average) for the year was $79.41.The MC of BABA at $79.41/ADS is roughly $190B USD. The EBT/MC yield at the average cost basis BABA had was roughly 8%. This results in BABA earning a 7.5% spread on this convertible debt while repurchasing shares. The risk in using debt is mitigated when BABA is earning a positive spread.Another risk BABA faces is the decline in FCF due to the investments they need to make to improve their business, subsidize SMEs on their platforms, and expand their AI infrastructure.As can be seen above, OPCF has come down 36% while CapEx has gone up 250% (the above numbers are in RMB). While we know why CapEx is up, this has greatly impacted FCF and should be monitored for further deterioration.A fundamental risk to BABA is the loss of merchants to competing platforms. Domestic competitors are taking market share from BABA, this is just a fact. BABA is still the most dominant platform, but we must monitor how BABA continues to respond to this aggressive competition. A subsidizing price war may continue to impact margins.The biggest risk to an investment in BABA is geopolitical uncertainty. This is harder to gauge and is totally unpredictable. However, this uncertainty is allowing investors to scoop up shares at a very cheap price.ValuationAuthor's notesMy intrinsic value for BABA is $152.10 per share. I grow the TTM FCF of $14.75B by 11%. I think a GR of 11% is conservative since BABA has grown FCF at a 21% CAGR over the past decade. I realize previous growth in BABA has decelerated, but I believe as their investments improve efficiency and management achieves a breakeven rate on all segments in 3-years they can hit this target. I also use a discount rate of 12% to make the model more conservative.I use a Terminal P/FCF multiple of 15. This is 25% below the past decade’s average of 20, but again, with geopolitical uncertainty I feel this discount is warranted.Summing UpBABA is cheap, and yes, it is cheap for a reason. However, I think the risk reward ratio makes BABA a Buy. If geopolitical uncertainty clears up, I will upgrade my rating to a Strong Buy.","kind":"highlight","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"Economic Data,analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":374703088632056,"gmtCreate":1732489608043,"gmtModify":1732489609912,"author":{"id":"3555362771681553","authorId":"3555362771681553","name":"nywles","avatar":"https://static.tigerbbs.com/a7e6473ec2cec348d167d7d95fbdb76c","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3555362771681553","authorIdStr":"3555362771681553"},"htmlText":"Thanks&nbsp;","listText":"Thanks&nbsp;","text":"Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/374703088632056","repostId":2485207198,"repostType":2,"repost":{"id":"2485207198","kind":"highlight","pubTimestamp":1732424555,"share":"https://ttm.financial/m/news/2485207198?lang=&edition=fundamental","pubTime":"2024-11-24 13:02","market":"nz","language":"en","title":"BABA: Disappointing Stimulus, Slower Growth, And Geopolitical Tensions Making The Stock Cheap","url":"https://stock-news.laohu8.com/highlight/detail?id=2485207198","media":"seekingalpha","summary":"Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.Management is actively investing in the business and ","content":"<html><head></head><body><ul style=\"\"><li><p>Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.</p></li><li><p>Management is actively investing in the business and repurchasing shares, with a focus on improving user experience and maintaining market share leadership.</p></li><li><p>Despite challenges, BABA&#39;s cloud segment showed impressive growth in Adj. EBITA, and their diversified investments are expected to yield long-term benefits.</p></li><li><p>Risks include debt for share repurchases, declining FCF, competitive pressures, and geopolitical uncertainty, but the current valuation offers a compelling risk-reward ratio.</p></li></ul><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/518c74f47e5727cc2c3f4193739c167f\" tg-width=\"750\" tg-height=\"500\"/></p><p></p><p>Alibaba (NYSE:BABA) is a company that is significantly undervalued, and some of this discounting is warranted due to geopolitical concerns and a slowdown in their core TTG segment. However, management is actively investing in their business and repurchasing shares in droves. I believe a Buy rating is warranted for BABA, and the only reason I do not have a Strong Buy rating is due to geopolitical uncertainty.</p><p>BABA has been written about extensively (I believe it has a cult stock following by value investors). Technically, the Cayman Islands structure facilitates a Variable Interest Entity (VIE) arrangement, which allows Alibaba to comply with Chinese regulations prohibiting foreign ownership of certain internet and technology businesses while still raising capital from international investors. If you do decide to make an investment in BABA, you should be aware of this scenario.</p><h2 id=\"id_1535804812\">Company / Segment Overview</h2><p>BABA is one of the “crown jewels” of China’s tech industry. It has 7 reporting units that I will briefly touch on. First, there is the Taboao and Tmall Group/TTG. This segment consists of all their e-commerce operations and generates most of the company’s revenue and adj. EBITA. Tmall is their B2C operations and Taobao is their C2C operations. The revenue model for TTG is that BABA provides the ecommerce platform where merchants of all sizes can come and sell their products to the domestic Chinese population. BABA charges fixed fees to merchants and recently implemented a 0.6% take rate fee on all Gross Merchandise Volume that is sold on their platforms.</p><p>Next, we have BABA’s Cloud Intelligence Group. This consists of BABA’s cloud infrastructure and AI and machine learning solutions. This segment also includes SaaS offerings to help with content delivery and cyber security. This segment has underperformed investors expectations for reasons we will get into later. This is one way how BABA has tried to diversify their business model away from being a pureplay Chinese ecommerce business.</p><p>The third segment is Alibaba’s International and Digital Commerce Group/AIDC. This is BABA’s international ecommerce offering. BABA has been focusing on expanding their offerings in Southeast Asia, the Middle East and Europe. BABA’s international approach is slightly different compared to PDD whose international business has been targeting the US market, avoiding tariffs by exploiting loopholes.</p><p>The fourth segment is their Cainiao Smart Logistics segment. This segment includes the entire logistical operation of their various business segments. They also offer international logistic operations for other companies who require these services. While the financial performance may seem small compared to the other segments, Cainiao is extremely important to customer and merchant satisfaction and keeps the engine of BABA going.</p><p>The fifth, sixth and seventh group are Local Services, Digital Media and Entertainment Group, and a catch-all “Other” group.</p><h2 id=\"id_2142397292\">What Happened in Q2 2025</h2><p>On November 15, 2024, BABA reported earnings for Q2 2025, and the market was not pleased with what it saw.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/3195959ac07d44af37a3ac1c2c7d42c8\" tg-width=\"640\" tg-height=\"232\"/></p><p></p><p>The company missed on the topline by $500M, but beat on the bottom line, mainly due to the share repurchase program we will discuss in depth later.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/f81f2dc6bd305ecdab235b4de26ea5bd\" alt=\"BABA Investor Presentation Data\" title=\"BABA Investor Presentation Data\" tg-width=\"640\" tg-height=\"286\"/><span>BABA Investor Presentation Data</span></p><p></p><p>As we can see in the above results, revenue only went up 1% in the TTG segment while adj. EBITA decreased 5% YoY. While the adj. EBITA margin for TTG is at 45%, the market is focusing on the 5% decrease. To be fair, BABA has been losing domestic market share to competitors like PDD and JD. This is forcing BABA to invest in their platforms, and may result in a merchant subsidy war with these competitors, if it hasn’t begun already. However, to have a 5% contraction in adj. EBITA while the Chinese economy is going through a property blowup, along with a disappointing stimulus response from the government, I find the TTG segment still quite impressive. While I do think we should temper growth expectations going forward, BABA’s TTG is still a phenomenal business.</p><p>The cloud segment had a 7% increase in revenue, but adj. EBITA had a whopping 89% increase. I find these numbers impressive because this growth was achieved while the U.S. government has been deliberately suppressing China’s access to advanced chips which are critical to AI development.</p><p>Some analysts have commented on how the revenue growth in cloud has been disappointing for BABA. I think these analysts are missing the nuance of this segment. Originally BABA was focusing on non-public cloud revenue projects. These projects were low margin, but were the main composition of revenue in this segment. Recently, BABA decided to transition the focus in cloud to higher margin public cloud products. This transition to public cloud products, while simultaneously weaning off the non-public business makes the revenue growth number look artificially lower than it should be. I advise investors to keep track of the growth in profitability in this segment. Again, an 89% jump in Adj. EBITA shows management was correct in pivoting. Management even spelled this out for us in their presentation.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/714077fe6647931e6065425d358f5d17\" alt=\"BABA Investor Presentation Data\" title=\"BABA Investor Presentation Data\" tg-width=\"640\" tg-height=\"213\"/><span>BABA Investor Presentation Data</span></p><p></p><p>While the adj. EBITA margin for this segment was 9%, the investments in cloud infrastructure will help them achieve scale and cost efficiencies, expanding margins in this business over time.</p><p>Management also highlighted how AI related product revenue has been growing by triple digits for the 5th Q in a row! I believe management has done extremely well pivoting their focus in cloud while managing their limited access to cutting-edge chips.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/1df2d6b9597da1bed18554a6eba1f312\" alt=\"BABA Investor Presentation Data\" title=\"BABA Investor Presentation Data\" tg-width=\"640\" tg-height=\"170\"/><span>BABA Investor Presentation Data</span></p><p></p><p>Some analysts have also stated how they are concerned that BABA’s cloud growth is slower than stalwarts like AMZN and MSFT. While it is true these companies have a bigger and faster growing cloud business, none of them are going to be able to have the penetration into the Chinese economy as homegrown Chinese companies do. As China is likely to become more protectionist in key industries like AI (just as the United States is) BABA is likely to be an AI provider of choice for China, with increasing market share over time. To not be exposed to one of the most dominant ecommerce platforms in the world in the second-largest economy at the current price is foolish, and patient investors are likely to be rewarded.</p><p>Like other analysts, I am disappointed in the decline of profitability in the AIDC segment. Even though revenues grew 29%, Adj. EBITA dropped 657%!</p><p>Management stated that the reason for the massive decline in profitability is due to the investments in their cross border platform, improving delivery times and expanding the supplier base. I am concerned if BABA is getting into a subsidy price war with competition like PDD and JD. While I like BABA’s focus on Southeast Asia, the Middle-East and Europe, this segment’s profitability must be watched. If margins deteriorate further, the gains in revenue won’t mean much to shareholders.</p><p>Another bright spot in the Q that surprised me was the 85% increase in adj. EBITA in their local services group which consists of Ele.me (domestic delivery services with a focus on food and groceries). The investments in scale for their delivery services have begun to result in cost efficiencies. Even though Adj. EBITA was negative in the Q, Local Services should be profitable to Adj. EBITA in the next Q and beyond.</p><p>When you consolidate their results, BABA grew revenue by 5% but adj. EBITA declined 5%. I want to reiterate that this Q&#39;s performance was accomplished as the Chinese economy is still dealing with the property blowup, the disappointing Chinese government stimulus, and their cloud business being impacted by sanctions. All things considered I think the Q was satisfactory.</p><h2 id=\"id_2596798333\">What Was Said on the Call</h2><p>Management gave some important feedback to analysts on the call that investors should be aware of.</p><p>As stated before, BABA implemented a 0.6% GMV fee for transactions across all their services. However, this began on Sept 1, 2024, therefore the next Q is going to be the first Q where this fee will be fully reflected in the financial results.</p><p>However, management also stated that they are offering rebates to SMEs using their platforms, and they canceled annual Tmall fees, so this could be a net negative effect in the short term. This confirms that BABA is subsidizing merchants on their platform. Management also stated, &#34;E-commerce competition remains intense, and we&#39;ll continue to invest in core user groups and product categories, increase investment in new users, and improve user retention&#34;.</p><p>Management also explained where they are focusing on their investment initiatives by investing in a diversified and cost-effective supply, improvement in user experience by improving aftersales service and logistic experience and the front-end UX. I believe these are appropriate investments and should help BABA to maintain market share leadership and stickiness of their platform. BABA still has over 46M 88VIP members, a double-digit increase YoY.</p><p>The CEO stated that we could essentially consider that TTG is investing in another growth stage. I want to focus on this statement quickly. BABA, which is undoubtedly the leader of ecommerce in China today, is still focused on investing and growing their business. History has given examples of how companies get large and become complacent (to be fair, BABA did get a little complacent in the past). But this management team is focused on growing their core business, focusing investment on the user experience. I think the management team is one thing that separates BABA apart from the competition.</p><p>In the Q, BABA repurchased 6% of the float YoY. They detail how they bought 30B RMB/4.1B USD in the Q. That is a reduction of 2% in the ADS float in one Q, 4.4% for the 1H! They also explained that they are being strategic, looking at technicals when purchasing these shares. They are trying to maximize this program and will likely keep a floor under the stock since they have over $22B left in the repurchase program.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/0b4aad1b9cf03ee4d827d2b1aa5879a5\" alt=\"BABA Investor Presentation Data\" title=\"BABA Investor Presentation Data\" tg-width=\"640\" tg-height=\"117\"/><span>BABA Investor Presentation Data</span></p><p></p><p>This bazooka of a repurchase program, while the company remains FCF positive, will reward the patient shareholder.</p><p>The final thing that stood out to me was that management stated they believe all of their segments are going to be at a breakeven point, or earnings will be accretive in two years or less. If management delivers on this, I believe the market will be forced to recognize the dominance of BABA and patient shareholders will be rewarded.</p><h2 id=\"id_3258954317\">Risks</h2><p>While I am overall bullish on BABA stock, there are some real risks with an investment in this company.</p><p>First, is the use of debt to repurchase shares of the company, and the overall buildup of debt on the B/S.</p><p>Normally, debt being raised to repurchase shares is a huge red flag. I would prefer the company use FCF to repurchase shares instead of interest-bearing debt. However, with BABA it makes sense based on 2 factors, what is the interest rate on the debt, and what is the EBT yield of the average purchase price of the repurchased shares. I use EBT since interest on debt is tax-deductible.</p><p>The TTM EBT is $15.3B. The current market cap at the time of this writing is $203B or $87/ADS. That equals a 7.5% EBT/MC yield. In theory, if the debt BABA issues had an interest rate below that 7.5% EBT yield, they are making money on the spread between the debt and the repurchased shares.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/7e10a76e721fb4b0ef67b5a486bc493f\" alt=\"BABA Quarterly Report\" title=\"BABA Quarterly Report\" tg-width=\"640\" tg-height=\"19\"/><span>BABA Quarterly Report</span></p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/0ed516aa43f3133fadb269ac56eb89ad\" alt=\"BABA Quarterly Report\" title=\"BABA Quarterly Report\" tg-width=\"640\" tg-height=\"99\"/><span>BABA Quarterly Report</span></p><p></p><p>As we can see above, the $5B of convertible debt BABA issued had a paltry interest rate at 0.5%. That $5B was then used to finance the repurchase program for this year. The average price per ADS (multiply the high and low prices by 8 and then adjust for the average) for the year was $79.41.</p><p>The MC of BABA at $79.41/ADS is roughly $190B USD. The EBT/MC yield at the average cost basis BABA had was roughly 8%. This results in BABA earning a 7.5% spread on this convertible debt while repurchasing shares. The risk in using debt is mitigated when BABA is earning a positive spread.</p><p>Another risk BABA faces is the decline in FCF due to the investments they need to make to improve their business, subsidize SMEs on their platforms, and expand their AI infrastructure.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/430105a67fc14ed112f71417b171e863\" tg-width=\"640\" tg-height=\"315\"/></p><p></p><p>As can be seen above, OPCF has come down 36% while CapEx has gone up 250% (the above numbers are in RMB). While we know why CapEx is up, this has greatly impacted FCF and should be monitored for further deterioration.</p><p>A fundamental risk to BABA is the loss of merchants to competing platforms. Domestic competitors are taking market share from BABA, this is just a fact. BABA is still the most dominant platform, but we must monitor how BABA continues to respond to this aggressive competition. A subsidizing price war may continue to impact margins.</p><p>The biggest risk to an investment in BABA is geopolitical uncertainty. This is harder to gauge and is totally unpredictable. However, this uncertainty is allowing investors to scoop up shares at a very cheap price.</p><h2 id=\"id_2540248990\">Valuation</h2><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/9cb576dee1d3c3628209494e950bfc88\" alt=\"Author&#39;s notes\" title=\"Author&#39;s notes\" tg-width=\"640\" tg-height=\"95\"/><span>Author&#39;s notes</span></p><p></p><p>My intrinsic value for BABA is $152.10 per share. I grow the TTM FCF of $14.75B by 11%. I think a GR of 11% is conservative since BABA has grown FCF at a 21% CAGR over the past decade. I realize previous growth in BABA has decelerated, but I believe as their investments improve efficiency and management achieves a breakeven rate on all segments in 3-years they can hit this target. I also use a discount rate of 12% to make the model more conservative.</p><p>I use a Terminal P/FCF multiple of 15. This is 25% below the past decade’s average of 20, but again, with geopolitical uncertainty I feel this discount is warranted.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/9f0a27cff4a2cd32ca67f46f2488a419\" tg-width=\"640\" tg-height=\"318\"/></p><p></p><h2 id=\"id_4149498179\">Summing Up</h2><p>BABA is cheap, and yes, it is cheap for a reason. However, I think the risk reward ratio makes BABA a Buy. If geopolitical uncertainty clears up, I will upgrade my rating to a Strong Buy.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>BABA: Disappointing Stimulus, Slower Growth, And Geopolitical Tensions Making The Stock Cheap</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBABA: Disappointing Stimulus, Slower Growth, And Geopolitical Tensions Making The Stock Cheap\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-24 13:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739837-baba-disappointing-stimulus-slower-growth-and-geopolitical-tensions-making-the-stock-cheap><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.Management is actively investing in the business and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739837-baba-disappointing-stimulus-slower-growth-and-geopolitical-tensions-making-the-stock-cheap\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"LU1515016050.SGD":"Blackrock Emerging Markets Equity Income A6 SGD-H","LU0880133367.SGD":"UBS (LUX) EQUITY FUND CHINA OPPORTUNITY USD \"P\" (SGD) ACC","BK4502":"阿里概念","LU0501845795.SGD":"瑞银大中华区股票基金P Acc SGD","BK4505":"高瓴资本持仓","LU0052756011.USD":"TEMPLETON GLOBAL BALANCED \"A\" (USD) INC","IE00BFMHRM44.USD":"NEUBERGER BERMAN GLOBAL EQUITY MEGATRENDS \"A\" (USD) ACC","IE00B0JY6N72.USD":"PINEBRIDGE GLOBAL EMERGING MARKETS FOCUS EQUITY \"A\" (USD) ACC","BK4581":"高盛持仓","LU2226246903.HKD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT4\" (HKD) ACC","BABA":"阿里巴巴","LU1823568750.SGD":"Fidelity Global Technology A-ACC SGD","BK4548":"巴美列捷福持仓","LU0072913022.USD":"UBS (LUX) EQUITY FUND -  GREATER CHINA \"P\" (USD) ACC","BK4565":"NFT概念","LU1152091168.USD":"UBS (LUX) EQUITY FUND - CHINA OPPORTUNITY (USD) \"PM\" INC","LU0128525689.USD":"TEMPLETON GLOBAL BALANCED \"A\"(USD) ACC","LU1105468828.SGD":"Allianz Total Return Asian Equity AM DIS H2-SGD","LU0067412154.USD":"UBS (LUX) EQUITY FUND -  CHINA OPPORTUNITY \"P\" (USD) ACC","09988":"阿里巴巴-W","LU0310800965.SGD":"FTIF - Templeton Global Balanced A Acc SGD","BK4554":"元宇宙及AR概念","BK4503":"景林资产持仓","LU1282648689.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AMG\" (USD) INC","LU1152091754.HKD":"UBS (LUX) EQUITY FUND - CHINA OPPORTUNITY (USD) \"PM\" (HKD) INC","LU1048596156.SGD":"Blackrock Asian Growth Leaders A2 SGD-H","BK4531":"中概回港概念","LU0348814723.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"A\" (USD) INC  NC","LU0821914370.USD":"贝莱德亚洲成长领袖A2","BK4534":"瑞士信贷持仓","LU1688375341.USD":"贝莱德中国灵活股票基金","LU0797268264.HKD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT\" (HKD) ACC","BK4533":"AQR资本管理(全球第二大对冲基金)","LU1046421795.USD":"富达环球科技A-ACC","BK4587":"ChatGPT概念","BK4558":"双十一","BK4575":"芯片概念","BK4535":"淡马锡持仓","BK4524":"宅经济概念","BK4220":"综合零售","LU0651946864.USD":"贝莱德新兴市场股票收益A2","LU0918141887.USD":"安联亚洲实际收益股票基金","BK4527":"明星科技股","LU1880383366.USD":"东方汇理中国股票基金 A2 (C)","LU1051768304.USD":"贝莱德新兴市场股票收益A6","BK4579":"人工智能","BK4588":"碎股","LU0348816934.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT\" (USD)","LU1046422090.SGD":"Fidelity Pacific A-SGD","BK4122":"互联网与直销零售"},"source_url":"https://seekingalpha.com/article/4739837-baba-disappointing-stimulus-slower-growth-and-geopolitical-tensions-making-the-stock-cheap","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2485207198","content_text":"Alibaba is undervalued, with geopolitical concerns and a slowdown in their core TTG segment justifying some discounting; a Buy rating is warranted.Management is actively investing in the business and repurchasing shares, with a focus on improving user experience and maintaining market share leadership.Despite challenges, BABA's cloud segment showed impressive growth in Adj. EBITA, and their diversified investments are expected to yield long-term benefits.Risks include debt for share repurchases, declining FCF, competitive pressures, and geopolitical uncertainty, but the current valuation offers a compelling risk-reward ratio.Alibaba (NYSE:BABA) is a company that is significantly undervalued, and some of this discounting is warranted due to geopolitical concerns and a slowdown in their core TTG segment. However, management is actively investing in their business and repurchasing shares in droves. I believe a Buy rating is warranted for BABA, and the only reason I do not have a Strong Buy rating is due to geopolitical uncertainty.BABA has been written about extensively (I believe it has a cult stock following by value investors). Technically, the Cayman Islands structure facilitates a Variable Interest Entity (VIE) arrangement, which allows Alibaba to comply with Chinese regulations prohibiting foreign ownership of certain internet and technology businesses while still raising capital from international investors. If you do decide to make an investment in BABA, you should be aware of this scenario.Company / Segment OverviewBABA is one of the “crown jewels” of China’s tech industry. It has 7 reporting units that I will briefly touch on. First, there is the Taboao and Tmall Group/TTG. This segment consists of all their e-commerce operations and generates most of the company’s revenue and adj. EBITA. Tmall is their B2C operations and Taobao is their C2C operations. The revenue model for TTG is that BABA provides the ecommerce platform where merchants of all sizes can come and sell their products to the domestic Chinese population. BABA charges fixed fees to merchants and recently implemented a 0.6% take rate fee on all Gross Merchandise Volume that is sold on their platforms.Next, we have BABA’s Cloud Intelligence Group. This consists of BABA’s cloud infrastructure and AI and machine learning solutions. This segment also includes SaaS offerings to help with content delivery and cyber security. This segment has underperformed investors expectations for reasons we will get into later. This is one way how BABA has tried to diversify their business model away from being a pureplay Chinese ecommerce business.The third segment is Alibaba’s International and Digital Commerce Group/AIDC. This is BABA’s international ecommerce offering. BABA has been focusing on expanding their offerings in Southeast Asia, the Middle East and Europe. BABA’s international approach is slightly different compared to PDD whose international business has been targeting the US market, avoiding tariffs by exploiting loopholes.The fourth segment is their Cainiao Smart Logistics segment. This segment includes the entire logistical operation of their various business segments. They also offer international logistic operations for other companies who require these services. While the financial performance may seem small compared to the other segments, Cainiao is extremely important to customer and merchant satisfaction and keeps the engine of BABA going.The fifth, sixth and seventh group are Local Services, Digital Media and Entertainment Group, and a catch-all “Other” group.What Happened in Q2 2025On November 15, 2024, BABA reported earnings for Q2 2025, and the market was not pleased with what it saw.The company missed on the topline by $500M, but beat on the bottom line, mainly due to the share repurchase program we will discuss in depth later.BABA Investor Presentation DataAs we can see in the above results, revenue only went up 1% in the TTG segment while adj. EBITA decreased 5% YoY. While the adj. EBITA margin for TTG is at 45%, the market is focusing on the 5% decrease. To be fair, BABA has been losing domestic market share to competitors like PDD and JD. This is forcing BABA to invest in their platforms, and may result in a merchant subsidy war with these competitors, if it hasn’t begun already. However, to have a 5% contraction in adj. EBITA while the Chinese economy is going through a property blowup, along with a disappointing stimulus response from the government, I find the TTG segment still quite impressive. While I do think we should temper growth expectations going forward, BABA’s TTG is still a phenomenal business.The cloud segment had a 7% increase in revenue, but adj. EBITA had a whopping 89% increase. I find these numbers impressive because this growth was achieved while the U.S. government has been deliberately suppressing China’s access to advanced chips which are critical to AI development.Some analysts have commented on how the revenue growth in cloud has been disappointing for BABA. I think these analysts are missing the nuance of this segment. Originally BABA was focusing on non-public cloud revenue projects. These projects were low margin, but were the main composition of revenue in this segment. Recently, BABA decided to transition the focus in cloud to higher margin public cloud products. This transition to public cloud products, while simultaneously weaning off the non-public business makes the revenue growth number look artificially lower than it should be. I advise investors to keep track of the growth in profitability in this segment. Again, an 89% jump in Adj. EBITA shows management was correct in pivoting. Management even spelled this out for us in their presentation.BABA Investor Presentation DataWhile the adj. EBITA margin for this segment was 9%, the investments in cloud infrastructure will help them achieve scale and cost efficiencies, expanding margins in this business over time.Management also highlighted how AI related product revenue has been growing by triple digits for the 5th Q in a row! I believe management has done extremely well pivoting their focus in cloud while managing their limited access to cutting-edge chips.BABA Investor Presentation DataSome analysts have also stated how they are concerned that BABA’s cloud growth is slower than stalwarts like AMZN and MSFT. While it is true these companies have a bigger and faster growing cloud business, none of them are going to be able to have the penetration into the Chinese economy as homegrown Chinese companies do. As China is likely to become more protectionist in key industries like AI (just as the United States is) BABA is likely to be an AI provider of choice for China, with increasing market share over time. To not be exposed to one of the most dominant ecommerce platforms in the world in the second-largest economy at the current price is foolish, and patient investors are likely to be rewarded.Like other analysts, I am disappointed in the decline of profitability in the AIDC segment. Even though revenues grew 29%, Adj. EBITA dropped 657%!Management stated that the reason for the massive decline in profitability is due to the investments in their cross border platform, improving delivery times and expanding the supplier base. I am concerned if BABA is getting into a subsidy price war with competition like PDD and JD. While I like BABA’s focus on Southeast Asia, the Middle-East and Europe, this segment’s profitability must be watched. If margins deteriorate further, the gains in revenue won’t mean much to shareholders.Another bright spot in the Q that surprised me was the 85% increase in adj. EBITA in their local services group which consists of Ele.me (domestic delivery services with a focus on food and groceries). The investments in scale for their delivery services have begun to result in cost efficiencies. Even though Adj. EBITA was negative in the Q, Local Services should be profitable to Adj. EBITA in the next Q and beyond.When you consolidate their results, BABA grew revenue by 5% but adj. EBITA declined 5%. I want to reiterate that this Q's performance was accomplished as the Chinese economy is still dealing with the property blowup, the disappointing Chinese government stimulus, and their cloud business being impacted by sanctions. All things considered I think the Q was satisfactory.What Was Said on the CallManagement gave some important feedback to analysts on the call that investors should be aware of.As stated before, BABA implemented a 0.6% GMV fee for transactions across all their services. However, this began on Sept 1, 2024, therefore the next Q is going to be the first Q where this fee will be fully reflected in the financial results.However, management also stated that they are offering rebates to SMEs using their platforms, and they canceled annual Tmall fees, so this could be a net negative effect in the short term. This confirms that BABA is subsidizing merchants on their platform. Management also stated, \"E-commerce competition remains intense, and we'll continue to invest in core user groups and product categories, increase investment in new users, and improve user retention\".Management also explained where they are focusing on their investment initiatives by investing in a diversified and cost-effective supply, improvement in user experience by improving aftersales service and logistic experience and the front-end UX. I believe these are appropriate investments and should help BABA to maintain market share leadership and stickiness of their platform. BABA still has over 46M 88VIP members, a double-digit increase YoY.The CEO stated that we could essentially consider that TTG is investing in another growth stage. I want to focus on this statement quickly. BABA, which is undoubtedly the leader of ecommerce in China today, is still focused on investing and growing their business. History has given examples of how companies get large and become complacent (to be fair, BABA did get a little complacent in the past). But this management team is focused on growing their core business, focusing investment on the user experience. I think the management team is one thing that separates BABA apart from the competition.In the Q, BABA repurchased 6% of the float YoY. They detail how they bought 30B RMB/4.1B USD in the Q. That is a reduction of 2% in the ADS float in one Q, 4.4% for the 1H! They also explained that they are being strategic, looking at technicals when purchasing these shares. They are trying to maximize this program and will likely keep a floor under the stock since they have over $22B left in the repurchase program.BABA Investor Presentation DataThis bazooka of a repurchase program, while the company remains FCF positive, will reward the patient shareholder.The final thing that stood out to me was that management stated they believe all of their segments are going to be at a breakeven point, or earnings will be accretive in two years or less. If management delivers on this, I believe the market will be forced to recognize the dominance of BABA and patient shareholders will be rewarded.RisksWhile I am overall bullish on BABA stock, there are some real risks with an investment in this company.First, is the use of debt to repurchase shares of the company, and the overall buildup of debt on the B/S.Normally, debt being raised to repurchase shares is a huge red flag. I would prefer the company use FCF to repurchase shares instead of interest-bearing debt. However, with BABA it makes sense based on 2 factors, what is the interest rate on the debt, and what is the EBT yield of the average purchase price of the repurchased shares. I use EBT since interest on debt is tax-deductible.The TTM EBT is $15.3B. The current market cap at the time of this writing is $203B or $87/ADS. That equals a 7.5% EBT/MC yield. In theory, if the debt BABA issues had an interest rate below that 7.5% EBT yield, they are making money on the spread between the debt and the repurchased shares.BABA Quarterly ReportBABA Quarterly ReportAs we can see above, the $5B of convertible debt BABA issued had a paltry interest rate at 0.5%. That $5B was then used to finance the repurchase program for this year. The average price per ADS (multiply the high and low prices by 8 and then adjust for the average) for the year was $79.41.The MC of BABA at $79.41/ADS is roughly $190B USD. The EBT/MC yield at the average cost basis BABA had was roughly 8%. This results in BABA earning a 7.5% spread on this convertible debt while repurchasing shares. The risk in using debt is mitigated when BABA is earning a positive spread.Another risk BABA faces is the decline in FCF due to the investments they need to make to improve their business, subsidize SMEs on their platforms, and expand their AI infrastructure.As can be seen above, OPCF has come down 36% while CapEx has gone up 250% (the above numbers are in RMB). While we know why CapEx is up, this has greatly impacted FCF and should be monitored for further deterioration.A fundamental risk to BABA is the loss of merchants to competing platforms. Domestic competitors are taking market share from BABA, this is just a fact. BABA is still the most dominant platform, but we must monitor how BABA continues to respond to this aggressive competition. A subsidizing price war may continue to impact margins.The biggest risk to an investment in BABA is geopolitical uncertainty. This is harder to gauge and is totally unpredictable. However, this uncertainty is allowing investors to scoop up shares at a very cheap price.ValuationAuthor's notesMy intrinsic value for BABA is $152.10 per share. I grow the TTM FCF of $14.75B by 11%. I think a GR of 11% is conservative since BABA has grown FCF at a 21% CAGR over the past decade. I realize previous growth in BABA has decelerated, but I believe as their investments improve efficiency and management achieves a breakeven rate on all segments in 3-years they can hit this target. I also use a discount rate of 12% to make the model more conservative.I use a Terminal P/FCF multiple of 15. This is 25% below the past decade’s average of 20, but again, with geopolitical uncertainty I feel this discount is warranted.Summing UpBABA is cheap, and yes, it is cheap for a reason. However, I think the risk reward ratio makes BABA a Buy. If geopolitical uncertainty clears up, I will upgrade my rating to a Strong Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":11,"commentSize":1,"repostSize":1,"favoriteSize":2,"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/2485207198"}