Alibaba: Deep Undervaluation Meets Changing Sentiment

seekingalpha05-22

Alibaba reported solid results in the last quarter and fiscal year with revenue and EPS increasing for the full year.The stock remains deeply undervalued, and when assuming only mid-single digit ...

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Huat小姐
·05-22
"The stock could doubled ". I have heard it over the past two years. Money invested here could have easily doubled with many other stocks .
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Since my last article was published on February 15, 2024, Alibaba increased 18% and clearly outperformed the S&P 500 (SPY).Data by YChartsBut we should not obscure the fact that Alibaba is still trading way below its previous all-time high, and almost everyone who bought Alibaba in the last few years is still in the red. In my last article, I wrote that it is always darkest before the dawn, and it seems like the dawn has broken. In the following article, I will explain why I not only think Alibaba is (still) extremely undervalued, but also why I also see reasons to be optimistic regarding sentiment.Quarterly ResultsLast week, on May 14, 2024, Alibaba reported its fourth quarter results for fiscal 2024 and while the company beat revenue estimates by $310 million, non-GAAP earnings per share missed slightly by $0.02.When looking at the results, we could describe the last quarterly results as mixed. Revenue increased from RMB 208.2 billion in Q4/23 to RMB 221.9 billion in Q4/24 – resulting in 6.6% top line growth. And while income from operations increased slightly (3.2% year-over-year growth) from RMB 14,765 million in the same quarter last year to RMB 15,240 million this quarter, diluted earnings per share declined steeply. Instead of RMB 1.12 in the same quarter last year, the company reported only RMB 0.16 in earnings per share this quarter.Alibaba Q4/23 Investor PresentationAnd while a lot was written about the steeply declining net income this quarter, the explanation is quite simple. The reason for the decline was the interest and investment income, which was RMB 10,946 million in the same quarter last year and in the last quarter the company generated a loss of RMB 5,702 million in Q4/24. Warren Buffett pointed out long ago that it makes sense in such circumstances (a company having huge equity investments) to look at operating income instead to level out these fluctuations of equity investments. And Alibaba has RMB 220.9 billion in “equity securities and other investments” as well as RMB 203.1 billion in “investment in equity method investees”. Additionally, Alibaba has RMB 263.0 billion in short-term investments.Annual ResultsWe can also look at the annual results and revenue increased from RMB 868.7 billion in the previous year to RMB 941.2 billion in the fiscal 2024 – resulting in 8.3% year-over-year growth. Income from operations increased 13.0% YoY from RMB 100,351 million to RMB 113,350 million and diluted earnings per share increased 14.0% YoY from RMB 3.43 in the previous year last year to RMB 3.91 in fiscal 2024. While these are solid results, free cash flow – one of the most important metrics – declined from RMB 171,663 million in fiscal 2023 to RMB 156,210 million in fiscal 2024. This is a decline of 9.0% year-over-year.Segment ResultsAlibaba is a rather diversified business and with the holding company being split up into six business segments, it makes sense to take a closer look – especially as there seem to be two different kinds of business segments. On the one side the core business, which is responsible for a huge part of revenue and basically the entire EBITDA, and on the other side we have business segments which are often not profitable or are barely profitable but can grow at a high pace.Alibaba Q4/23 Investor PresentationThe most important segment is without any doubt the Taobao and Tmall Group. In fiscal 2024 it generated RMB 434,893 million in revenue and although revenue grew 5.2% year-over-year it can’t match the growth rates of other segments. Adjusted EBITDA increased only slightly from RMB 189,140 million in the previous year to RMB 194,827 million in fiscal 2024 – resulting in 3.0% growth, but the segment is generating more adjusted EBITDA than the Alibaba Group (as other segments are not profitable).Another segment that seems to belong in this category now is the Cloud Intelligence Group, which generated RMB 106,374 million in revenue and compared to the previous year this is only 2.8% year-over-year growth. And the segment generated RMB 6,121 million in adjusted EBITDA and compared to the previous fiscal year this results in 49.3% YoY growth. Compared to the Taobao and Tmall Group, which has an adjusted EBITDA margin of 44.8%, the Cloud Intelligence Group has only a margin of 5.8%.In fiscal 2024 revenue increased only in the low single digits for the segment, but as I already pointed out in my article Alibaba: Spin-Off as catalyst to unlock value we have reasons to assume higher growth rates again for the cloud business in the years to come as several studies assume growth rates in the double-digits.On the other hand, we have two segments which are growing with a rather high pace but are not really profitable yet. The Cainiao Smart Logistics Networks Limited generated RMB 99,020 million in revenue – an increase of 27.7% year-over-year growth in revenue. And for fiscal 2024, the segment was also profitable and generated an adjusted EBITDA of RMB 1,420 million (compared to a small loss in the previous year).And another segment growing with a high pace is Alibaba International Digital Commerce Group. In fiscal 2024 revenue increased 45.5% year-over-year to RMB 102,598 million. But while revenue is growing with a high pace, the segment is still not profitable and generated a loss of RMB 8,035 million in fiscal 2024. And not only is the segment not profitable, the adjusted EBITDA loss is much higher than in fiscal 2023.DividendAlibaba also announced it will pay another annual dividend of $1.00 per ADS. And as many might be similar surprised as I was when I read this, there seems to be a simple explanation. The annual dividend paid in January 2024 was for the last fiscal year, while the dividend that will be paid to shareholders in July 2024 is for the next fiscal year. And aside from the ordinary dividend, the board has also approved a one-time extraordinary cash dividend of $0.66 per ADS (resulting from proceeds from disposition of certain financial investments). The ordinary and extraordinary dividend combined lead to a dividend yield of 1.9% for Alibaba at the time of writing. Alibaba will go ex-dividend on June 13, 2024.Alibaba Q4/23 Investor PresentationSo far, Alibaba is distributing only a small part of its free cash flow as dividend. Instead, the company is focusing on share buybacks and considering the extremely low share price (see section below) it makes sense to use as much cash as possible for share buybacks and not pay high dividends to shareholders.Data by YChartsDuring the last quarter, Alibaba spent almost $5 billion on share buybacks and during the last fiscal year the company spent $12.5 billion. And since 2021, the number of outstanding shares (here we are looking at the ADS) declined from 2,755 million to 2,498 million.Intrinsic Value CalculationI already mentioned above that I consider share buybacks a good allocation of capital (at least right now) as the stock is (still) deeply undervalued. This becomes obvious when looking at the simple valuation metrics – the P/E ratio and P/FCF ratio. Right now, Alibaba is trading for 15 times earnings, which is already a low valuation multiple for a business still being able to grow at least in the mid-to-high single digits.Data by YChartsAnd when looking at the P/FCF ratio, it gets even more obvious how deeply undervalued Alibaba is. At the time of writing, the stock is trading for only 7.5 times free cash flow, which is ridiculous in my opinion. Even without Alibaba growing, this is an unjustified valuation multiple.Aside from looking at simple valuation multiples, we can also calculate an intrinsic value by using a discount cash flow calculation. As always, we must make some assumptions for such a calculation. As a basis, we can take the free cash flow of the last four quarters, which was RMB 156,210 million and $21,635 million when looking at USD. And as we are comparing our intrinsic value to the ADR, which is trading on the New York Stock Exchange, it makes sense to calculate our intrinsic value in USD. Additionally, we calculate with 2,498 million outstanding shares. And as always, we use a 10% discount rate as this is the annual return I want to achieve (at least).When calculating with these assumptions, Alibaba is more or less fairly valued even when the company is not able to grow its free cash flow ever again. Alibaba has a fair valued of $86.63 in such a scenario and is now trading for that price.But we once again must point out that these assumptions are not very plausible. If we only assume 3% growth for Alibaba, we get an intrinsic value for Alibaba of $123.75 and the stock is undervalued. And when being even more optimistic and assume 6% growth from now till perpetuity, we get an intrinsic value of $216.57 for Alibaba. Of course, we can question if 6% growth is not too optimistic for Alibaba – especially over the long run. But the wide economic moat around the business should enable Alibaba to grow with such a high pace and past growth rates are also showing us that Alibaba is able to grow with a high pace (even in the last few years when the business was struggling). While operating income grew only 3.5% in the last three years, it grew with a CAGR of 7.93% in the last five years. And revenue grew with a CAGR of 19.45% in the last three years.Sentiment ChangingI mentioned again and again in previous articles that Alibaba is undervalued – that is nothing new. But right now, there also seem to be several reasons to be optimistic.A first reason to be optimistic are the other major Chinese technology companies and the stock performance of these companies. Not only did Alibaba’s stock price jump in the last few weeks, JD.com (JD) also increased in value after it declined steeply in the last few quarters. And Tencent (OTCPK:TCEHY) is now moving higher since the beginning of March 2024 and already increased 50% in about two and a half months.Data by YChartsAnd it is not only these individual stocks moving higher, but also major stock market indices in China. The Hang Seng Index for example bottomed in January 2024 and the index increased from about 15,000 points to about 19,500 points since then. And especially since mid-April the index really rallied. And the CSI-300 also bottomed in early February 2024 and has since then increased about 18% in value.A second reason to be optimistic and bet on a sentiment change is the technical picture of Alibaba. When looking at the last few times after Alibaba reported earnings, the stock almost always declined in the weeks and months following earnings – as the overall sentiment was negative, and the stock just continued to decline. But following the last earnings, the picture changed (at least so far). While earnings were not so great (and the stock declined rather steeply during the trading day following earnings) the stock now continues to move higher – in line with a bullish sentiment.TradingViewOf course, we are only looking at a few trading days following earnings, and it is too early to draw a conclusion. And before Alibaba is not able to move above $100, the stock is still in a bearish trend and we certainly should be cautious. Nevertheless, I am very optimistic that Alibaba found its bottom around $60.And finally, in line with the changing sentiment, analysts also seem to have gotten more optimistic and positive. Of course, these are only very small positive changes, but it is the first-time analysts are getting more optimistic about revenue since 2021.Alibaba Consensus Revenue Revision Trend (Seeking Alpha)ConclusionI still see Alibaba deeply undervalued and from a fundamental point of view, I believe the stock could easily double. And now I not only see the stock as undervalued, but also see signs of sentiment changing – not only for Alibaba but the entire Chinese technology sector (and stock market). At this point, I would rate Alibaba as “strong bullish” as a deeply undervalued company is now meeting changing sentiment, and so I think we could see rising stock prices.And I am still aware of the risk surrounding Alibaba. In previous articles I already mentioned several risks surrounding the company and stock, and in a 2021 article I talked about the high fines and the risk of political uncertainty. And in January 2022, I also talked about the fear of a delisting for BABA. A recently published article is summing up these risks quite well. But while I see similar issues and risks that should be considered, my conclusion is different. I still don’t think the Chinese government will risk its country becoming uninvestable and also not destroy its most valuable companies. In the end, I see the risk/reward relationship deeply in favor of a bullish Alibaba thesis.","kind":null,"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":0},"commentList":[{"id":308560538779736,"gmtCreate":1716354003129,"gmtModify":1716354007081,"author":{"id":"4093499725885820","authorId":"4093499725885820","name":"Huat小姐","avatar":"https://static.tigerbbs.com/1ea5840431390db7c8c784b53d27c048","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4093499725885820","authorIdStr":"4093499725885820"},"htmlText":"\"The stock could doubled \". &nbsp;I have heard it over the past two years. &nbsp;Money invested here could have easily doubled with many other stocks .","listText":"\"The stock could doubled \". &nbsp;I have heard it over the past two years. &nbsp;Money invested here could have easily doubled with many other stocks .","text":"\"The stock could doubled \". I have heard it over the past two years. Money invested here could have easily doubled with many other stocks .","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/308560538779736","repostId":2437382481,"repostType":2,"repost":{"id":"2437382481","pubTimestamp":1716347754,"share":"https://ttm.financial/m/news/2437382481?lang=&edition=fundamental","pubTime":"2024-05-22 11:15","market":"sg","language":"en","title":"Alibaba: Deep Undervaluation Meets Changing Sentiment","url":"https://stock-news.laohu8.com/highlight/detail?id=2437382481","media":"seekingalpha","summary":"Alibaba reported solid results in the last quarter and fiscal year with revenue and EPS increasing for the full year.The stock remains deeply undervalued, and when assuming only mid-single digit growt","content":"<html><head></head><body><ul style=\"\"><li><p>Alibaba reported solid results in the last quarter and fiscal year with revenue and EPS increasing for the full year.</p></li><li><p>The stock remains deeply undervalued, and when assuming only mid-single digit growth rates, I believe the stock price could double.</p></li><li><p>And aside from being deeply undervalued, we also see signs for sentiment changing regarding Alibaba and the Chinese stock market in general.</p></li></ul><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/b8c14f58dccd9c0adcd98fb70e15a895\" alt=\"Robert Way\" title=\"Robert Way\" tg-width=\"750\" tg-height=\"500\"/><span>Robert Way</span></p><p>In beginning this article about Alibaba Group Holding Limited I can make a rare statement and write a sentence I could seldom write in the past few years. Since my last article was published on February 15, 2024, Alibaba increased 18% and clearly outperformed the S&amp;P 500 (SPY).</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/dd5f88aa14ce3b8ed1b9fc04221899d6\" alt=\"Data by YCharts\" title=\"Data by YCharts\" tg-width=\"635\" tg-height=\"424\"/><span>Data by YCharts</span></p><p>But we should not obscure the fact that Alibaba is still trading way below its previous all-time high, and almost everyone who bought Alibaba in the last few years is still in the red. In my last article, I wrote that it is always darkest before the dawn, and it seems like the dawn has broken. In the following article, I will explain why I not only think Alibaba is (still) extremely undervalued, but also why I also see reasons to be optimistic regarding sentiment.</p><h2 id=\"id_2339160643\">Quarterly Results</h2><p>Last week, on May 14, 2024, Alibaba reported its fourth quarter results for fiscal 2024 and while the company beat revenue estimates by $310 million, non-GAAP earnings per share missed slightly by $0.02.</p><p>When looking at the results, we could describe the last quarterly results as mixed. Revenue increased from RMB 208.2 billion in Q4/23 to RMB 221.9 billion in Q4/24 – resulting in 6.6% top line growth. And while income from operations increased slightly (3.2% year-over-year growth) from RMB 14,765 million in the same quarter last year to RMB 15,240 million this quarter, diluted earnings per share declined steeply. Instead of RMB 1.12 in the same quarter last year, the company reported only RMB 0.16 in earnings per share this quarter.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/b98dedba5f7b82875b5a6ce6b661ee2d\" alt=\"Alibaba Q4/23 Investor Presentation\" title=\"Alibaba Q4/23 Investor Presentation\" tg-width=\"640\" tg-height=\"361\"/><span>Alibaba Q4/23 Investor Presentation</span></p><p>And while a lot was written about the steeply declining net income this quarter, the explanation is quite simple. The reason for the decline was the interest and investment income, which was RMB 10,946 million in the same quarter last year and in the last quarter the company generated a loss of RMB 5,702 million in Q4/24. Warren Buffett pointed out long ago that it makes sense in such circumstances (a company having huge equity investments) to look at operating income instead to level out these fluctuations of equity investments. And Alibaba has RMB 220.9 billion in “equity securities and other investments” as well as RMB 203.1 billion in “investment in equity method investees”. Additionally, Alibaba has RMB 263.0 billion in short-term investments.</p><h2 id=\"id_1205336252\">Annual Results</h2><p>We can also look at the annual results and revenue increased from RMB 868.7 billion in the previous year to RMB 941.2 billion in the fiscal 2024 – resulting in 8.3% year-over-year growth. Income from operations increased 13.0% YoY from RMB 100,351 million to RMB 113,350 million and diluted earnings per share increased 14.0% YoY from RMB 3.43 in the previous year last year to RMB 3.91 in fiscal 2024. While these are solid results, free cash flow – one of the most important metrics – declined from RMB 171,663 million in fiscal 2023 to RMB 156,210 million in fiscal 2024. This is a decline of 9.0% year-over-year.</p><h2 id=\"id_2307629193\">Segment Results</h2><p>Alibaba is a rather diversified business and with the holding company being split up into six business segments, it makes sense to take a closer look – especially as there seem to be two different kinds of business segments. On the one side the core business, which is responsible for a huge part of revenue and basically the entire EBITDA, and on the other side we have business segments which are often not profitable or are barely profitable but can grow at a high pace.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/159a2becad13108ecb047183dd7926b0\" alt=\"Alibaba Q4/23 Investor Presentation\" title=\"Alibaba Q4/23 Investor Presentation\" tg-width=\"640\" tg-height=\"357\"/><span>Alibaba Q4/23 Investor Presentation</span></p><p>The most important segment is without any doubt the <em>Taobao and Tmall Group</em>. In fiscal 2024 it generated RMB 434,893 million in revenue and although revenue grew 5.2% year-over-year it can’t match the growth rates of other segments. Adjusted EBITDA increased only slightly from RMB 189,140 million in the previous year to RMB 194,827 million in fiscal 2024 – resulting in 3.0% growth, but the segment is generating more adjusted EBITDA than the Alibaba Group (as other segments are not profitable).</p><p>Another segment that seems to belong in this category now is the <em>Cloud Intelligence Group</em>, which generated RMB 106,374 million in revenue and compared to the previous year this is only 2.8% year-over-year growth. And the segment generated RMB 6,121 million in adjusted EBITDA and compared to the previous fiscal year this results in 49.3% YoY growth. Compared to the Taobao and Tmall Group, which has an adjusted EBITDA margin of 44.8%, the Cloud Intelligence Group has only a margin of 5.8%.</p><p>In fiscal 2024 revenue increased only in the low single digits for the segment, but as I already pointed out in my article <em>Alibaba: Spin-Off as catalyst to unlock value</em> we have reasons to assume higher growth rates again for the cloud business in the years to come as several studies assume growth rates in the double-digits.</p><p>On the other hand, we have two segments which are growing with a rather high pace but are not really profitable yet. The <em>Cainiao Smart Logistics Networks Limited</em> generated RMB 99,020 million in revenue – an increase of 27.7% year-over-year growth in revenue. And for fiscal 2024, the segment was also profitable and generated an adjusted EBITDA of RMB 1,420 million (compared to a small loss in the previous year).</p><p>And another segment growing with a high pace is Alibaba International Digital Commerce Group. In fiscal 2024 revenue increased 45.5% year-over-year to RMB 102,598 million. But while revenue is growing with a high pace, the segment is still not profitable and generated a loss of RMB 8,035 million in fiscal 2024. And not only is the segment not profitable, the adjusted EBITDA loss is much higher than in fiscal 2023.</p><h2 id=\"id_1140397339\">Dividend</h2><p>Alibaba also announced it will pay another annual dividend of $1.00 per ADS. And as many might be similar surprised as I was when I read this, there seems to be a simple explanation. The annual dividend paid in January 2024 was for the last fiscal year, while the dividend that will be paid to shareholders in July 2024 is for the next fiscal year. And aside from the ordinary dividend, the board has also approved a one-time extraordinary cash dividend of $0.66 per ADS (resulting from proceeds from disposition of certain financial investments). The ordinary and extraordinary dividend combined lead to a dividend yield of 1.9% for Alibaba at the time of writing. Alibaba will go ex-dividend on June 13, 2024.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/1c126d2a959419cc0c75adaf6690fc10\" alt=\"Alibaba Q4/23 Investor Presentation\" title=\"Alibaba Q4/23 Investor Presentation\" tg-width=\"640\" tg-height=\"359\"/><span>Alibaba Q4/23 Investor Presentation</span></p><p>So far, Alibaba is distributing only a small part of its free cash flow as dividend. Instead, the company is focusing on share buybacks and considering the extremely low share price (see section below) it makes sense to use as much cash as possible for share buybacks and not pay high dividends to shareholders.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/f851908d87fb341dd49983a136141aea\" alt=\"Data by YCharts\" title=\"Data by YCharts\" tg-width=\"635\" tg-height=\"424\"/><span>Data by YCharts</span></p><p>During the last quarter, Alibaba spent almost $5 billion on share buybacks and during the last fiscal year the company spent $12.5 billion. And since 2021, the number of outstanding shares (here we are looking at the ADS) declined from 2,755 million to 2,498 million.</p><h2 id=\"id_3750464043\">Intrinsic Value Calculation</h2><p>I already mentioned above that I consider share buybacks a good allocation of capital (at least right now) as the stock is (still) deeply undervalued. This becomes obvious when looking at the simple valuation metrics – the P/E ratio and P/FCF ratio. Right now, Alibaba is trading for 15 times earnings, which is already a low valuation multiple for a business still being able to grow at least in the mid-to-high single digits.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/18d114d50f46b98127ce7c69389a0b41\" alt=\"Data by YCharts\" title=\"Data by YCharts\" tg-width=\"635\" tg-height=\"439\"/><span>Data by YCharts</span></p><p>And when looking at the P/FCF ratio, it gets even more obvious how deeply undervalued Alibaba is. At the time of writing, the stock is trading for only 7.5 times free cash flow, which is ridiculous in my opinion. Even without Alibaba growing, this is an unjustified valuation multiple.</p><p>Aside from looking at simple valuation multiples, we can also calculate an intrinsic value by using a discount cash flow calculation. As always, we must make some assumptions for such a calculation. As a basis, we can take the free cash flow of the last four quarters, which was RMB 156,210 million and $21,635 million when looking at USD. And as we are comparing our intrinsic value to the ADR, which is trading on the New York Stock Exchange, it makes sense to calculate our intrinsic value in USD. Additionally, we calculate with 2,498 million outstanding shares. And as always, we use a 10% discount rate as this is the annual return I want to achieve (at least).</p><p>When calculating with these assumptions, Alibaba is more or less fairly valued even when the company is not able to grow its free cash flow ever again. Alibaba has a fair valued of $86.63 in such a scenario and is now trading for that price.</p><p>But we once again must point out that these assumptions are not very plausible. If we only assume 3% growth for Alibaba, we get an intrinsic value for Alibaba of $123.75 and the stock is undervalued. And when being even more optimistic and assume 6% growth from now till perpetuity, we get an intrinsic value of $216.57 for Alibaba. Of course, we can question if 6% growth is not too optimistic for Alibaba – especially over the long run. But the wide economic moat around the business should enable Alibaba to grow with such a high pace and past growth rates are also showing us that Alibaba is able to grow with a high pace (even in the last few years when the business was struggling). While operating income grew only 3.5% in the last three years, it grew with a CAGR of 7.93% in the last five years. And revenue grew with a CAGR of 19.45% in the last three years.</p><h2 id=\"id_1043046212\">Sentiment Changing</h2><p>I mentioned again and again in previous articles that Alibaba is undervalued – that is nothing new. But right now, there also seem to be several reasons to be optimistic.</p><p>A first reason to be optimistic are the other major Chinese technology companies and the stock performance of these companies. Not only did Alibaba’s stock price jump in the last few weeks, JD.com (JD) also increased in value after it declined steeply in the last few quarters. And Tencent (OTCPK:TCEHY) is now moving higher since the beginning of March 2024 and already increased 50% in about two and a half months.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/26170cfe361f04051e97c8c589fb0f19\" alt=\"Data by YCharts\" title=\"Data by YCharts\" tg-width=\"635\" tg-height=\"456\"/><span>Data by YCharts</span></p><p>And it is not only these individual stocks moving higher, but also major stock market indices in China. The Hang Seng Index for example bottomed in January 2024 and the index increased from about 15,000 points to about 19,500 points since then. And especially since mid-April the index really rallied. And the CSI-300 also bottomed in early February 2024 and has since then increased about 18% in value.</p><p>A second reason to be optimistic and bet on a sentiment change is the technical picture of Alibaba. When looking at the last few times after Alibaba reported earnings, the stock almost always declined in the weeks and months following earnings – as the overall sentiment was negative, and the stock just continued to decline. But following the last earnings, the picture changed (at least so far). While earnings were not so great (and the stock declined rather steeply during the trading day following earnings) the stock now continues to move higher – in line with a bullish sentiment.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/bbb2961327b8f8c46da5357281159544\" alt=\"TradingView\" title=\"TradingView\" tg-width=\"640\" tg-height=\"378\"/><span>TradingView</span></p><p>Of course, we are only looking at a few trading days following earnings, and it is too early to draw a conclusion. And before Alibaba is not able to move above $100, the stock is still in a bearish trend and we certainly should be cautious. Nevertheless, I am very optimistic that Alibaba found its bottom around $60.</p><p>And finally, in line with the changing sentiment, analysts also seem to have gotten more optimistic and positive. Of course, these are only very small positive changes, but it is the first-time analysts are getting more optimistic about revenue since 2021.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/8865911c52ea252639bf6fd336f6d081\" alt=\"Alibaba Consensus Revenue Revision Trend (Seeking Alpha)\" title=\"Alibaba Consensus Revenue Revision Trend (Seeking Alpha)\" tg-width=\"640\" tg-height=\"231\"/><span>Alibaba Consensus Revenue Revision Trend (Seeking Alpha)</span></p><h2 id=\"id_2792500878\">Conclusion</h2><p>I still see Alibaba deeply undervalued and from a fundamental point of view, I believe the stock could easily double. And now I not only see the stock as undervalued, but also see signs of sentiment changing – not only for Alibaba but the entire Chinese technology sector (and stock market). At this point, I would rate Alibaba as “strong bullish” as a deeply undervalued company is now meeting changing sentiment, and so I think we could see rising stock prices.</p><p>And I am still aware of the risk surrounding Alibaba. In previous articles I already mentioned several risks surrounding the company and stock, and in a 2021 article I talked about the high fines and the risk of political uncertainty. And in January 2022, I also talked about the fear of a delisting for BABA. A recently published article is summing up these risks quite well. But while I see similar issues and risks that should be considered, my conclusion is different. I still don’t think the Chinese government will risk its country becoming uninvestable and also not destroy its most valuable companies. In the end, I see the risk/reward relationship deeply in favor of a bullish Alibaba thesis.</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>Alibaba: Deep Undervaluation Meets Changing Sentiment</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\">\nAlibaba: Deep Undervaluation Meets Changing Sentiment\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-22 11:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4694604-alibaba-deep-undervaluation-meets-changing-sentiment><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba reported solid results in the last quarter and fiscal year with revenue and EPS increasing for the full year.The stock remains deeply undervalued, and when assuming only mid-single digit ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694604-alibaba-deep-undervaluation-meets-changing-sentiment\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4503":"景林资产持仓","BABA":"阿里巴巴","LU0348783233.USD":"安联东方收入型 CI A Dis美元","BK4505":"高瓴资本持仓","LU1105468828.SGD":"Allianz Total Return Asian Equity AM DIS H2-SGD","BK1586":"云计算","LU0084288322.USD":"Natixis Asia Equity RD USD","BK4504":"桥水持仓","LU0348814723.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"A\" (USD) INC  NC","IE00BGV7N243.SGD":"FSSA Global Emerging Markets Focus I Acc SGD","LU1051768304.USD":"贝莱德新兴市场股票收益A6","LU0054450605.USD":"HSBC GIF GLOBAL EMERGING MARKTS EQ \"AD\" INC","LU0051755006.USD":"摩根大通中国A (dist)","LU0287142896.SGD":"Fidelity China Focus A-SGD","LU1688375341.USD":"贝莱德中国灵活股票基金","BK4565":"NFT概念","LU0029875118.USD":"TEMPLETON ASIAN GROWTH \"A\" INC","LU0130103400.USD":"Natixis Harris Associates Global Equity RA USD","09988":"阿里巴巴-W","BK1608":"元宇宙概念","BK1575":"同股不同权","LU0128522744.USD":"TEMPLETON EMERGING MARKETS \"A\" ACC","BK1501":"阿里概念股","LU0106959298.USD":"UBS (LUX) EQUITY FUND - EMERGING MARKETS SUSTAINABLE LEADERS (USD) \"P\" (USD) ACC","LU0348816934.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"AT\" (USD)","LU0251143458.SGD":"Fidelity Emerging Markets A-SGD","BK4526":"热门中概股","BK4558":"双十一","BK4220":"综合零售","LU0228659784.USD":"施罗德金砖四国基金","BK4559":"巴菲特持仓","IE0032431581.USD":"PINEBRIDGE GREATER CHINA EQUITY \"A\" (USD) ACC","BK4538":"云计算","BK4077":"互动媒体与服务","BK1249":"综合零售","BK4550":"红杉资本持仓"},"source_url":"https://seekingalpha.com/article/4694604-alibaba-deep-undervaluation-meets-changing-sentiment","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2437382481","content_text":"Alibaba reported solid results in the last quarter and fiscal year with revenue and EPS increasing for the full year.The stock remains deeply undervalued, and when assuming only mid-single digit growth rates, I believe the stock price could double.And aside from being deeply undervalued, we also see signs for sentiment changing regarding Alibaba and the Chinese stock market in general.Robert WayIn beginning this article about Alibaba Group Holding Limited I can make a rare statement and write a sentence I could seldom write in the past few years. Since my last article was published on February 15, 2024, Alibaba increased 18% and clearly outperformed the S&P 500 (SPY).Data by YChartsBut we should not obscure the fact that Alibaba is still trading way below its previous all-time high, and almost everyone who bought Alibaba in the last few years is still in the red. In my last article, I wrote that it is always darkest before the dawn, and it seems like the dawn has broken. In the following article, I will explain why I not only think Alibaba is (still) extremely undervalued, but also why I also see reasons to be optimistic regarding sentiment.Quarterly ResultsLast week, on May 14, 2024, Alibaba reported its fourth quarter results for fiscal 2024 and while the company beat revenue estimates by $310 million, non-GAAP earnings per share missed slightly by $0.02.When looking at the results, we could describe the last quarterly results as mixed. Revenue increased from RMB 208.2 billion in Q4/23 to RMB 221.9 billion in Q4/24 – resulting in 6.6% top line growth. And while income from operations increased slightly (3.2% year-over-year growth) from RMB 14,765 million in the same quarter last year to RMB 15,240 million this quarter, diluted earnings per share declined steeply. Instead of RMB 1.12 in the same quarter last year, the company reported only RMB 0.16 in earnings per share this quarter.Alibaba Q4/23 Investor PresentationAnd while a lot was written about the steeply declining net income this quarter, the explanation is quite simple. The reason for the decline was the interest and investment income, which was RMB 10,946 million in the same quarter last year and in the last quarter the company generated a loss of RMB 5,702 million in Q4/24. Warren Buffett pointed out long ago that it makes sense in such circumstances (a company having huge equity investments) to look at operating income instead to level out these fluctuations of equity investments. And Alibaba has RMB 220.9 billion in “equity securities and other investments” as well as RMB 203.1 billion in “investment in equity method investees”. Additionally, Alibaba has RMB 263.0 billion in short-term investments.Annual ResultsWe can also look at the annual results and revenue increased from RMB 868.7 billion in the previous year to RMB 941.2 billion in the fiscal 2024 – resulting in 8.3% year-over-year growth. Income from operations increased 13.0% YoY from RMB 100,351 million to RMB 113,350 million and diluted earnings per share increased 14.0% YoY from RMB 3.43 in the previous year last year to RMB 3.91 in fiscal 2024. While these are solid results, free cash flow – one of the most important metrics – declined from RMB 171,663 million in fiscal 2023 to RMB 156,210 million in fiscal 2024. This is a decline of 9.0% year-over-year.Segment ResultsAlibaba is a rather diversified business and with the holding company being split up into six business segments, it makes sense to take a closer look – especially as there seem to be two different kinds of business segments. On the one side the core business, which is responsible for a huge part of revenue and basically the entire EBITDA, and on the other side we have business segments which are often not profitable or are barely profitable but can grow at a high pace.Alibaba Q4/23 Investor PresentationThe most important segment is without any doubt the Taobao and Tmall Group. In fiscal 2024 it generated RMB 434,893 million in revenue and although revenue grew 5.2% year-over-year it can’t match the growth rates of other segments. Adjusted EBITDA increased only slightly from RMB 189,140 million in the previous year to RMB 194,827 million in fiscal 2024 – resulting in 3.0% growth, but the segment is generating more adjusted EBITDA than the Alibaba Group (as other segments are not profitable).Another segment that seems to belong in this category now is the Cloud Intelligence Group, which generated RMB 106,374 million in revenue and compared to the previous year this is only 2.8% year-over-year growth. And the segment generated RMB 6,121 million in adjusted EBITDA and compared to the previous fiscal year this results in 49.3% YoY growth. Compared to the Taobao and Tmall Group, which has an adjusted EBITDA margin of 44.8%, the Cloud Intelligence Group has only a margin of 5.8%.In fiscal 2024 revenue increased only in the low single digits for the segment, but as I already pointed out in my article Alibaba: Spin-Off as catalyst to unlock value we have reasons to assume higher growth rates again for the cloud business in the years to come as several studies assume growth rates in the double-digits.On the other hand, we have two segments which are growing with a rather high pace but are not really profitable yet. The Cainiao Smart Logistics Networks Limited generated RMB 99,020 million in revenue – an increase of 27.7% year-over-year growth in revenue. And for fiscal 2024, the segment was also profitable and generated an adjusted EBITDA of RMB 1,420 million (compared to a small loss in the previous year).And another segment growing with a high pace is Alibaba International Digital Commerce Group. In fiscal 2024 revenue increased 45.5% year-over-year to RMB 102,598 million. But while revenue is growing with a high pace, the segment is still not profitable and generated a loss of RMB 8,035 million in fiscal 2024. And not only is the segment not profitable, the adjusted EBITDA loss is much higher than in fiscal 2023.DividendAlibaba also announced it will pay another annual dividend of $1.00 per ADS. And as many might be similar surprised as I was when I read this, there seems to be a simple explanation. The annual dividend paid in January 2024 was for the last fiscal year, while the dividend that will be paid to shareholders in July 2024 is for the next fiscal year. And aside from the ordinary dividend, the board has also approved a one-time extraordinary cash dividend of $0.66 per ADS (resulting from proceeds from disposition of certain financial investments). The ordinary and extraordinary dividend combined lead to a dividend yield of 1.9% for Alibaba at the time of writing. Alibaba will go ex-dividend on June 13, 2024.Alibaba Q4/23 Investor PresentationSo far, Alibaba is distributing only a small part of its free cash flow as dividend. Instead, the company is focusing on share buybacks and considering the extremely low share price (see section below) it makes sense to use as much cash as possible for share buybacks and not pay high dividends to shareholders.Data by YChartsDuring the last quarter, Alibaba spent almost $5 billion on share buybacks and during the last fiscal year the company spent $12.5 billion. And since 2021, the number of outstanding shares (here we are looking at the ADS) declined from 2,755 million to 2,498 million.Intrinsic Value CalculationI already mentioned above that I consider share buybacks a good allocation of capital (at least right now) as the stock is (still) deeply undervalued. This becomes obvious when looking at the simple valuation metrics – the P/E ratio and P/FCF ratio. Right now, Alibaba is trading for 15 times earnings, which is already a low valuation multiple for a business still being able to grow at least in the mid-to-high single digits.Data by YChartsAnd when looking at the P/FCF ratio, it gets even more obvious how deeply undervalued Alibaba is. At the time of writing, the stock is trading for only 7.5 times free cash flow, which is ridiculous in my opinion. Even without Alibaba growing, this is an unjustified valuation multiple.Aside from looking at simple valuation multiples, we can also calculate an intrinsic value by using a discount cash flow calculation. As always, we must make some assumptions for such a calculation. As a basis, we can take the free cash flow of the last four quarters, which was RMB 156,210 million and $21,635 million when looking at USD. And as we are comparing our intrinsic value to the ADR, which is trading on the New York Stock Exchange, it makes sense to calculate our intrinsic value in USD. Additionally, we calculate with 2,498 million outstanding shares. And as always, we use a 10% discount rate as this is the annual return I want to achieve (at least).When calculating with these assumptions, Alibaba is more or less fairly valued even when the company is not able to grow its free cash flow ever again. Alibaba has a fair valued of $86.63 in such a scenario and is now trading for that price.But we once again must point out that these assumptions are not very plausible. If we only assume 3% growth for Alibaba, we get an intrinsic value for Alibaba of $123.75 and the stock is undervalued. And when being even more optimistic and assume 6% growth from now till perpetuity, we get an intrinsic value of $216.57 for Alibaba. Of course, we can question if 6% growth is not too optimistic for Alibaba – especially over the long run. But the wide economic moat around the business should enable Alibaba to grow with such a high pace and past growth rates are also showing us that Alibaba is able to grow with a high pace (even in the last few years when the business was struggling). While operating income grew only 3.5% in the last three years, it grew with a CAGR of 7.93% in the last five years. And revenue grew with a CAGR of 19.45% in the last three years.Sentiment ChangingI mentioned again and again in previous articles that Alibaba is undervalued – that is nothing new. But right now, there also seem to be several reasons to be optimistic.A first reason to be optimistic are the other major Chinese technology companies and the stock performance of these companies. Not only did Alibaba’s stock price jump in the last few weeks, JD.com (JD) also increased in value after it declined steeply in the last few quarters. And Tencent (OTCPK:TCEHY) is now moving higher since the beginning of March 2024 and already increased 50% in about two and a half months.Data by YChartsAnd it is not only these individual stocks moving higher, but also major stock market indices in China. The Hang Seng Index for example bottomed in January 2024 and the index increased from about 15,000 points to about 19,500 points since then. And especially since mid-April the index really rallied. And the CSI-300 also bottomed in early February 2024 and has since then increased about 18% in value.A second reason to be optimistic and bet on a sentiment change is the technical picture of Alibaba. When looking at the last few times after Alibaba reported earnings, the stock almost always declined in the weeks and months following earnings – as the overall sentiment was negative, and the stock just continued to decline. But following the last earnings, the picture changed (at least so far). While earnings were not so great (and the stock declined rather steeply during the trading day following earnings) the stock now continues to move higher – in line with a bullish sentiment.TradingViewOf course, we are only looking at a few trading days following earnings, and it is too early to draw a conclusion. And before Alibaba is not able to move above $100, the stock is still in a bearish trend and we certainly should be cautious. Nevertheless, I am very optimistic that Alibaba found its bottom around $60.And finally, in line with the changing sentiment, analysts also seem to have gotten more optimistic and positive. Of course, these are only very small positive changes, but it is the first-time analysts are getting more optimistic about revenue since 2021.Alibaba Consensus Revenue Revision Trend (Seeking Alpha)ConclusionI still see Alibaba deeply undervalued and from a fundamental point of view, I believe the stock could easily double. And now I not only see the stock as undervalued, but also see signs of sentiment changing – not only for Alibaba but the entire Chinese technology sector (and stock market). At this point, I would rate Alibaba as “strong bullish” as a deeply undervalued company is now meeting changing sentiment, and so I think we could see rising stock prices.And I am still aware of the risk surrounding Alibaba. In previous articles I already mentioned several risks surrounding the company and stock, and in a 2021 article I talked about the high fines and the risk of political uncertainty. And in January 2022, I also talked about the fear of a delisting for BABA. A recently published article is summing up these risks quite well. But while I see similar issues and risks that should be considered, my conclusion is different. I still don’t think the Chinese government will risk its country becoming uninvestable and also not destroy its most valuable companies. In the end, I see the risk/reward relationship deeply in favor of a bullish Alibaba thesis.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":7,"commentSize":1,"repostSize":1,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false}}