Alibaba Keeps On Rewarding Investors As New Silver Linings Emerge

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Alibaba Keeps On Rewarding Investors As New Silver Linings Emerge

seekingalpha08-29

Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% ...

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WilliamQuan
·08-29
Almost fell out of chair misreading keeps instead of keeps on. I mean, who could be so wicked as to toast us heartbroken baba investors?
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King19
·08-29
For once, I have to agreed with this guy. Baba has been a value trapped for a while and I think it's time this rocket starts flying to the moon in the next qtr 😃 What do you think?
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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 Keeps On Rewarding Investors As New Silver Linings Emerge\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-29 11:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% ...</p>\n\n<a href=\"https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge\">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":"09988","symbol_name":"阿里巴巴-W","start_time":0,"source_url":"https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge","article_id":"2463495517","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2463495517","pubTimestamp":1724902041,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% gro","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"09988":"阿里巴巴-W","BABA":"阿里巴巴"},"translate_title":"随着新的一线希望的出现，阿里巴巴-SW继续回报投资者","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"09988":1,"BABA":1},"content_text":"Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% growth in EBITA and the annualized EBITA of cloud business has reached $1.2 billion or 9% of the revenue base.The company repurchased stock worth $5.8 billion and has expunged 77 million shares or 3.2% of the outstanding shares in a single quarter.The EPS growth estimate for the next two years is in double-digits, which improves the sentiment towards the stock.Despite concerns by many analysts, a more hawkish foreign policy by the next administration in the US could be a tailwind towards Alibaba stock by reducing geopolitical uncertainty.maybefalse/iStock Unreleased via Getty ImagesAlibaba Group Holding Limited's (NYSE:BABA) recent earnings did not meet expectations in terms of revenue estimate. However, Alibaba stock has pushed higher over the last few days as the extreme bearish sentiment towards the company reduced. There were several silver linings in the recent earnings which should impress long-term investors. Alibaba is rewarding investors through massive buybacks. In the recent quarter, the company purchased $5.8 billion worth of stock which expunged 77 million shares or 3.2% of the outstanding 2.4 billion shares. On an annualized basis, this is equal to more than 12.8%. Alibaba has another $26 billion within its current buyback program. The massive FCF should allow the company to maintain the current investment in buybacks. In the previous article, it was mentioned that Alibaba's new growth initiatives could provide an additional tailwind to the stock.On the other hand, Alibaba's cloud business has started showing better margins. The EBITA for cloud business increased to $322 million or $1.2 billion on an annualized basis with 155% YoY growth. The EBITA margin in the cloud segment has increased from 3.5% in the year-ago quarter to 9% in the recent quarter. The revenue share of international commerce has increased to 12% of the consolidated revenue base and is growing at a rapid pace which should reduce the geographic risk. EPS estimates for the next two years show double-digit growth which should boost sentiment as the company improves the growth trajectory outside the Taobao and Tmall segments.The elephant in the room is the geopolitical risk which has pushed down the valuation multiple of all China-based stocks. Many analysts believe that the next administration in the White House could have a more hawkish foreign policy which might hurt Alibaba and other Chinese stocks. However, a more hawkish foreign policy could reduce the geopolitical uncertainty which in turn could end up being a good tailwind for Alibaba stock.Rewarding investors through buybacksAlibaba has ramped up its investment in share repurchases. In the recent quarter, Alibaba spent a staggering $5.8 billion on share repurchase which reduced the share count by 77 million. The outstanding shares now stand at 2.37 billion. In a single quarter, Alibaba reduced the outstanding shares by 3.2% or 12.8% on an annualized basis. The company produced FCF of $24 billion in the trailing twelve months. It has ramped up investment in Alibaba Cloud but the current FCF should allow the company to continue the share repurchase program. The remaining amount in the share repurchase program was $26 billion.Alibaba FilingsFigure: Increase in share repurchase by Alibaba in the last few quarters. Source: Alibaba FilingsThis buyback pace should help improve the EPS trajectory over the next few quarters. The EPS estimate for the next two fiscal years shows a double-digit growth. The EPS estimate for the fiscal year ending March 2026 is $9.88 which gives it a forward PE of only 8.6. The forward PE for the fiscal year ending March 2027 is 7.86.Even if the company delivers low single-digit revenue growth in its core business, the buybacks should allow Alibaba to gain good EPS growth. There are enough resources to continue the current buyback pace and the rock-bottom valuation multiple could make the management invest more in buybacks.Seeking AlphaFigure: EPS estimate of Alibaba in the next few years. Source: Seeking AlphaSilver linings in recent earningsDespite missing revenue and net income estimates in the recent earnings, Alibaba has reported several strong metrics that can boost sentiment in the near term. One of the key growth drivers for Alibaba is the cloud business. The company has reported EBITA of $322 million in cloud business or $1.2 billion on an annualized basis. In the year-ago quarter, the Cloud business reported an EBITA of RMB 916 million or 3.5% EBITA margin. In the recent quarter, the EBITA margin has increased to 9% which is more than 5 percentage points higher than the year-ago quarter. This shows the ability of the company to rapidly increase margins despite high competition within the domestic market.Alibaba FilingsFigure: Improvement in EBITA of cloud business. Source: Alibaba FilingsThe cloud revenue was $3.6 billion and it reported 6% YoY growth. This shows that the EBITA margin for cloud business has increased to 9% from a negative margin a few quarters back. However, Alibaba can still expand this margin. We have seen Amazon.com, Inc.'s (AMZN) AWS continue to deliver an operating margin of close to 30% for a number of years.Amazon FilingsFigure: AWS metrics of Amazon. Source: Amazon FilingsRecently, Alphabet Inc.'s (GOOG) (GOOGL) Google Cloud has also increased its margins.Alibaba has been trying hard to improve the EBITA margin in the last few quarters. A Bloomberg report mentioned that the company had completed layoffs of 20,000 in 2023. While the slowdown in revenue growth in core business is a headwind, Alibaba has tried to improve its margins and profitability. It is highly likely that Alibaba would be able to close the gap with AWS as it continues to invest in new tools and chips.The international commerce business is another strong segment for the company. It reported revenue of $4 billion in the recent quarter. This is 12% of the consolidated revenue base of $33 billion. The YoY growth rate of international commerce is 32% which should help increase the revenue share of this segment. If the current trend continues, international business could contribute over 20% of the revenue share by the end of the next fiscal. This should reduce the geographic risk associated with the stock and possibly improve the valuation multiple.Change in the geopolitical landscapeOne of the key reasons keeping Alibaba stock low is geopolitical uncertainty. Many bearish analysts have pointed out that the next administration could be more hawkish in its foreign policy which would hurt the sentiment towards the stock. However, there is a major fallacy in this argument. A more hawkish foreign policy by the White House should reduce geopolitical uncertainty. Wall Street hates uncertainty and a clear foreign policy guidance could end up helping Alibaba and other China-based stocks.This is counter-intuitive, but a very hawkish administration can prevent regional issues from turning into a big escalation. It is difficult to quantify this theory, but we have seen in the past few decades that a strong foreign policy from the White House can reduce geopolitical tensions in key regions.It should be noted that during the previous White House administration, Alibaba stock increased from $90 in 2017 to $300 by the last quarter of 2020.YChartsFigure: Stock performance of Alibaba, JD, and Tencent during the previous administration. Source: YChartsThe above chart shows the strong performance of Alibaba and other Chinese stocks during the previous administration. Despite the rhetoric, a very hawkish policy in the previous administration reduced the geopolitical uncertainty. This helped Alibaba as the stock was priced based on fundamentals instead of external factors.Future stock trajectoryAlibaba did not meet the revenue and income estimates of Wall Street in recent earnings. However, the stock has still gained close to 10% post earnings in the last few days. One explanation is that Alibaba has moved away from the worst-case scenario. It has also reported good numbers in key segments like cloud, international commerce, Cainiao, and Local Services Group. The core e-commerce business continues to be a drag in terms of revenue growth, but the margins are still quite good. Rapid improvement in Cloud margins should improve the overall EBITA and EPS trajectory for the company.YChartsFigure: Key metrics of Alibaba, JD, and Baidu. Source: YChartsAlmost all Chinese stocks are reporting low YoY revenue growth as the economy in China continues to underperform. However, Alibaba has a number of tailwinds working in its favor. The rapid increase in the revenue share of international commerce should reduce the geographic risk. Alibaba's massive buyback program increases the likelihood that the company will post double-digit EPS growth as the outstanding shares are reduced quickly. We could also see better cloud revenue growth as new AI tools are launched by Alibaba.A poor performance by the economy can also force the government in China to increase fiscal measures. We have already seen some support for the property sector. This could boost customer confidence and be a tailwind for Alibaba. Finally, a more hawkish foreign policy by the next White House administration could reduce the uncertainty surrounding geopolitics in this region.There are still several risks associated with Alibaba. One of the key risks is the lack of revenue growth in core commerce which is pulling down the overall growth metrics. Another risk is that if the situation in Taiwan escalates it would significantly hurt the sentiment towards the stock. However, it is likely that the positives far outweigh the negatives and with a rock-bottom valuation, Alibaba stock looks quite attractive.Investor TakeawayAlibaba has missed estimates in the recent earnings, but the stock has gained close to 10% in the last few days as the market focuses on the positive numbers. The cloud division is showing rapid profit margin growth which should boost the overall profitability. The increase in the revenue share of international commerce also reduces the risk associated with Alibaba.At a forward PE ratio of less than 10, the stock looks attractive. The company has strong FCF and is investing heavily in share repurchases which should boost the EPS growth significantly. The geopolitical risks are a concern, but there are strong fundamental tailwinds that can deliver a good upside for the stock in the next few quarters.","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":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":343577794109664,"gmtCreate":1724910906156,"gmtModify":1724910910043,"author":{"id":"3578686285736482","authorId":"3578686285736482","name":"WilliamQuan","avatar":"https://static.tigerbbs.com/d7ce36b4de3c373f1ae0b40da77a0b3f","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3578686285736482","authorIdStr":"3578686285736482"},"htmlText":"Almost fell out of chair misreading keeps instead of keeps&nbsp;on. I mean, who could be so wicked as&nbsp;to toast us heartbroken baba investors?","listText":"Almost fell out of chair misreading keeps instead of keeps&nbsp;on. I mean, who could be so wicked as&nbsp;to toast us heartbroken baba investors?","text":"Almost fell out of chair misreading keeps instead of keeps on. I mean, who could be so wicked as to toast us heartbroken baba investors?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/343577794109664","repostId":2463495517,"repostType":2,"repost":{"id":"2463495517","kind":"highlight","pubTimestamp":1724902041,"share":"https://ttm.financial/m/news/2463495517?lang=&edition=fundamental","pubTime":"2024-08-29 11:27","market":"fut","language":"en","title":"Alibaba Keeps On Rewarding Investors As New Silver Linings Emerge","url":"https://stock-news.laohu8.com/highlight/detail?id=2463495517","media":"seekingalpha","summary":"Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% gro","content":"<html><head></head><body><ul style=\"\"><li><p>Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.</p></li><li><p>Alibaba’s cloud operation showed 155% growth in EBITA and the annualized EBITA of cloud business has reached $1.2 billion or 9% of the revenue base.</p></li><li><p>The company repurchased stock worth $5.8 billion and has expunged 77 million shares or 3.2% of the outstanding shares in a single quarter.</p></li><li><p>The EPS growth estimate for the next two years is in double-digits, which improves the sentiment towards the stock.</p></li><li><p>Despite concerns by many analysts, a more hawkish foreign policy by the next administration in the US could be a tailwind towards Alibaba stock by reducing geopolitical uncertainty.</p></li></ul><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/462cd3697f83bcec3578c700effe99fc\" tg-width=\"750\" tg-height=\"500\"/></p><p>maybefalse/iStock Unreleased via Getty Images</p><p></p><p>Alibaba Group Holding Limited&#39;s (NYSE:BABA) recent earnings did not meet expectations in terms of revenue estimate. However, Alibaba stock has pushed higher over the last few days as the extreme bearish sentiment towards the company reduced. There were several silver linings in the recent earnings which should impress long-term investors. Alibaba is rewarding investors through massive buybacks. In the recent quarter, the company purchased $5.8 billion worth of stock which expunged 77 million shares or 3.2% of the outstanding 2.4 billion shares. On an annualized basis, this is equal to more than 12.8%. Alibaba has another $26 billion within its current buyback program. The massive FCF should allow the company to maintain the current investment in buybacks. In the previous article, it was mentioned that Alibaba&#39;s new growth initiatives could provide an additional tailwind to the stock.</p><p>On the other hand, Alibaba&#39;s cloud business has started showing better margins. The EBITA for cloud business increased to $322 million or $1.2 billion on an annualized basis with 155% YoY growth. The EBITA margin in the cloud segment has increased from 3.5% in the year-ago quarter to 9% in the recent quarter. The revenue share of international commerce has increased to 12% of the consolidated revenue base and is growing at a rapid pace which should reduce the geographic risk. EPS estimates for the next two years show double-digit growth which should boost sentiment as the company improves the growth trajectory outside the Taobao and Tmall segments.</p><p>The elephant in the room is the geopolitical risk which has pushed down the valuation multiple of all China-based stocks. Many analysts believe that the next administration in the White House could have a more hawkish foreign policy which might hurt Alibaba and other Chinese stocks. However, a more hawkish foreign policy could reduce the geopolitical uncertainty which in turn could end up being a good tailwind for Alibaba stock.</p><h2 id=\"id_1116654823\">Rewarding investors through buybacks</h2><p>Alibaba has ramped up its investment in share repurchases. In the recent quarter, Alibaba spent a staggering $5.8 billion on share repurchase which reduced the share count by 77 million. The outstanding shares now stand at 2.37 billion. In a single quarter, Alibaba reduced the outstanding shares by 3.2% or 12.8% on an annualized basis. The company produced FCF of $24 billion in the trailing twelve months. It has ramped up investment in Alibaba Cloud but the current FCF should allow the company to continue the share repurchase program. The remaining amount in the share repurchase program was $26 billion.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/e135239f4cafdf1bb545f9ddd22b955b\" tg-width=\"922\" tg-height=\"393\"/></p><p>Alibaba Filings</p><p></p><p>Figure: Increase in share repurchase by Alibaba in the last few quarters. Source: Alibaba Filings</p><p>This buyback pace should help improve the EPS trajectory over the next few quarters. The EPS estimate for the next two fiscal years shows a double-digit growth. The EPS estimate for the fiscal year ending March 2026 is $9.88 which gives it a forward PE of only 8.6. The forward PE for the fiscal year ending March 2027 is 7.86.</p><p>Even if the company delivers low single-digit revenue growth in its core business, the buybacks should allow Alibaba to gain good EPS growth. There are enough resources to continue the current buyback pace and the rock-bottom valuation multiple could make the management invest more in buybacks.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/2debebe093f07279927bfa0557f21983\" tg-width=\"1046\" tg-height=\"187\"/></p><p>Seeking Alpha</p><p></p><p>Figure: EPS estimate of Alibaba in the next few years. Source: Seeking Alpha</p><h2 id=\"id_2615242362\">Silver linings in recent earnings</h2><p>Despite missing revenue and net income estimates in the recent earnings, Alibaba has reported several strong metrics that can boost sentiment in the near term. One of the key growth drivers for Alibaba is the cloud business. The company has reported EBITA of $322 million in cloud business or $1.2 billion on an annualized basis. In the year-ago quarter, the Cloud business reported an EBITA of RMB 916 million or 3.5% EBITA margin. In the recent quarter, the EBITA margin has increased to 9% which is more than 5 percentage points higher than the year-ago quarter. This shows the ability of the company to rapidly increase margins despite high competition within the domestic market.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/c4d4af632ee0d37b740787091d85bb76\" tg-width=\"771\" tg-height=\"239\"/></p><p>Alibaba Filings</p><p></p><p>Figure: Improvement in EBITA of cloud business. Source: Alibaba Filings</p><p>The cloud revenue was $3.6 billion and it reported 6% YoY growth. This shows that the EBITA margin for cloud business has increased to 9% from a negative margin a few quarters back. However, Alibaba can still expand this margin. We have seen Amazon.com, Inc.&#39;s (AMZN) AWS continue to deliver an operating margin of close to 30% for a number of years.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/290bbd15a9ebc5d3845d58135f39520d\" tg-width=\"640\" tg-height=\"253\"/></p><p>Amazon Filings</p><p></p><p>Figure: AWS metrics of Amazon. Source: Amazon Filings</p><p>Recently, Alphabet Inc.&#39;s (GOOG) (GOOGL) Google Cloud has also increased its margins.</p><p>Alibaba has been trying hard to improve the EBITA margin in the last few quarters. A Bloomberg report mentioned that the company had completed layoffs of 20,000 in 2023. While the slowdown in revenue growth in core business is a headwind, Alibaba has tried to improve its margins and profitability. It is highly likely that Alibaba would be able to close the gap with AWS as it continues to invest in new tools and chips.</p><p>The international commerce business is another strong segment for the company. It reported revenue of $4 billion in the recent quarter. This is 12% of the consolidated revenue base of $33 billion. The YoY growth rate of international commerce is 32% which should help increase the revenue share of this segment. If the current trend continues, international business could contribute over 20% of the revenue share by the end of the next fiscal. This should reduce the geographic risk associated with the stock and possibly improve the valuation multiple.</p><h2 id=\"id_2063157062\">Change in the geopolitical landscape</h2><p>One of the key reasons keeping Alibaba stock low is geopolitical uncertainty. Many bearish analysts have pointed out that the next administration could be more hawkish in its foreign policy which would hurt the sentiment towards the stock. However, there is a major fallacy in this argument. A more hawkish foreign policy by the White House should reduce geopolitical uncertainty. Wall Street hates uncertainty and a clear foreign policy guidance could end up helping Alibaba and other China-based stocks.</p><p>This is counter-intuitive, but a very hawkish administration can prevent regional issues from turning into a big escalation. It is difficult to quantify this theory, but we have seen in the past few decades that a strong foreign policy from the White House can reduce geopolitical tensions in key regions.</p><p>It should be noted that during the previous White House administration, Alibaba stock increased from $90 in 2017 to $300 by the last quarter of 2020.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/211fdb05e2aff180f67f00b1ac76e897\" tg-width=\"976\" tg-height=\"402\"/></p><p>YCharts</p><p></p><p>Figure: Stock performance of Alibaba, JD, and Tencent during the previous administration. Source: YCharts</p><p>The above chart shows the strong performance of Alibaba and other Chinese stocks during the previous administration. Despite the rhetoric, a very hawkish policy in the previous administration reduced the geopolitical uncertainty. This helped Alibaba as the stock was priced based on fundamentals instead of external factors.</p><h2 id=\"id_43558342\">Future stock trajectory</h2><p>Alibaba did not meet the revenue and income estimates of Wall Street in recent earnings. However, the stock has still gained close to 10% post earnings in the last few days. One explanation is that Alibaba has moved away from the worst-case scenario. It has also reported good numbers in key segments like cloud, international commerce, Cainiao, and Local Services Group. The core e-commerce business continues to be a drag in terms of revenue growth, but the margins are still quite good. Rapid improvement in Cloud margins should improve the overall EBITA and EPS trajectory for the company.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/260c22d5bbf3c54b2cc9bea76c53e187\" tg-width=\"973\" tg-height=\"398\"/></p><p>YCharts</p><p></p><p>Figure: Key metrics of Alibaba, JD, and Baidu. Source: YCharts</p><p>Almost all Chinese stocks are reporting low YoY revenue growth as the economy in China continues to underperform. However, Alibaba has a number of tailwinds working in its favor. The rapid increase in the revenue share of international commerce should reduce the geographic risk. Alibaba&#39;s massive buyback program increases the likelihood that the company will post double-digit EPS growth as the outstanding shares are reduced quickly. We could also see better cloud revenue growth as new AI tools are launched by Alibaba.</p><p>A poor performance by the economy can also force the government in China to increase fiscal measures. We have already seen some support for the property sector. This could boost customer confidence and be a tailwind for Alibaba. Finally, a more hawkish foreign policy by the next White House administration could reduce the uncertainty surrounding geopolitics in this region.</p><p>There are still several risks associated with Alibaba. One of the key risks is the lack of revenue growth in core commerce which is pulling down the overall growth metrics. Another risk is that if the situation in Taiwan escalates it would significantly hurt the sentiment towards the stock. However, it is likely that the positives far outweigh the negatives and with a rock-bottom valuation, Alibaba stock looks quite attractive.</p><h2 id=\"id_3777745713\">Investor Takeaway</h2><p>Alibaba has missed estimates in the recent earnings, but the stock has gained close to 10% in the last few days as the market focuses on the positive numbers. The cloud division is showing rapid profit margin growth which should boost the overall profitability. The increase in the revenue share of international commerce also reduces the risk associated with Alibaba.</p><p>At a forward PE ratio of less than 10, the stock looks attractive. The company has strong FCF and is investing heavily in share repurchases which should boost the EPS growth significantly. The geopolitical risks are a concern, but there are strong fundamental tailwinds that can deliver a good upside for the stock in the next few quarters.</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 Keeps On Rewarding Investors As New Silver Linings Emerge</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 Keeps On Rewarding Investors As New Silver Linings Emerge\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-29 11:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% ...</p>\n\n<a href=\"https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09988":"阿里巴巴-W","BABA":"阿里巴巴"},"source_url":"https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2463495517","content_text":"Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% growth in EBITA and the annualized EBITA of cloud business has reached $1.2 billion or 9% of the revenue base.The company repurchased stock worth $5.8 billion and has expunged 77 million shares or 3.2% of the outstanding shares in a single quarter.The EPS growth estimate for the next two years is in double-digits, which improves the sentiment towards the stock.Despite concerns by many analysts, a more hawkish foreign policy by the next administration in the US could be a tailwind towards Alibaba stock by reducing geopolitical uncertainty.maybefalse/iStock Unreleased via Getty ImagesAlibaba Group Holding Limited's (NYSE:BABA) recent earnings did not meet expectations in terms of revenue estimate. However, Alibaba stock has pushed higher over the last few days as the extreme bearish sentiment towards the company reduced. There were several silver linings in the recent earnings which should impress long-term investors. Alibaba is rewarding investors through massive buybacks. In the recent quarter, the company purchased $5.8 billion worth of stock which expunged 77 million shares or 3.2% of the outstanding 2.4 billion shares. On an annualized basis, this is equal to more than 12.8%. Alibaba has another $26 billion within its current buyback program. The massive FCF should allow the company to maintain the current investment in buybacks. In the previous article, it was mentioned that Alibaba's new growth initiatives could provide an additional tailwind to the stock.On the other hand, Alibaba's cloud business has started showing better margins. The EBITA for cloud business increased to $322 million or $1.2 billion on an annualized basis with 155% YoY growth. The EBITA margin in the cloud segment has increased from 3.5% in the year-ago quarter to 9% in the recent quarter. The revenue share of international commerce has increased to 12% of the consolidated revenue base and is growing at a rapid pace which should reduce the geographic risk. EPS estimates for the next two years show double-digit growth which should boost sentiment as the company improves the growth trajectory outside the Taobao and Tmall segments.The elephant in the room is the geopolitical risk which has pushed down the valuation multiple of all China-based stocks. Many analysts believe that the next administration in the White House could have a more hawkish foreign policy which might hurt Alibaba and other Chinese stocks. However, a more hawkish foreign policy could reduce the geopolitical uncertainty which in turn could end up being a good tailwind for Alibaba stock.Rewarding investors through buybacksAlibaba has ramped up its investment in share repurchases. In the recent quarter, Alibaba spent a staggering $5.8 billion on share repurchase which reduced the share count by 77 million. The outstanding shares now stand at 2.37 billion. In a single quarter, Alibaba reduced the outstanding shares by 3.2% or 12.8% on an annualized basis. The company produced FCF of $24 billion in the trailing twelve months. It has ramped up investment in Alibaba Cloud but the current FCF should allow the company to continue the share repurchase program. The remaining amount in the share repurchase program was $26 billion.Alibaba FilingsFigure: Increase in share repurchase by Alibaba in the last few quarters. Source: Alibaba FilingsThis buyback pace should help improve the EPS trajectory over the next few quarters. The EPS estimate for the next two fiscal years shows a double-digit growth. The EPS estimate for the fiscal year ending March 2026 is $9.88 which gives it a forward PE of only 8.6. The forward PE for the fiscal year ending March 2027 is 7.86.Even if the company delivers low single-digit revenue growth in its core business, the buybacks should allow Alibaba to gain good EPS growth. There are enough resources to continue the current buyback pace and the rock-bottom valuation multiple could make the management invest more in buybacks.Seeking AlphaFigure: EPS estimate of Alibaba in the next few years. Source: Seeking AlphaSilver linings in recent earningsDespite missing revenue and net income estimates in the recent earnings, Alibaba has reported several strong metrics that can boost sentiment in the near term. One of the key growth drivers for Alibaba is the cloud business. The company has reported EBITA of $322 million in cloud business or $1.2 billion on an annualized basis. In the year-ago quarter, the Cloud business reported an EBITA of RMB 916 million or 3.5% EBITA margin. In the recent quarter, the EBITA margin has increased to 9% which is more than 5 percentage points higher than the year-ago quarter. This shows the ability of the company to rapidly increase margins despite high competition within the domestic market.Alibaba FilingsFigure: Improvement in EBITA of cloud business. Source: Alibaba FilingsThe cloud revenue was $3.6 billion and it reported 6% YoY growth. This shows that the EBITA margin for cloud business has increased to 9% from a negative margin a few quarters back. However, Alibaba can still expand this margin. We have seen Amazon.com, Inc.'s (AMZN) AWS continue to deliver an operating margin of close to 30% for a number of years.Amazon FilingsFigure: AWS metrics of Amazon. Source: Amazon FilingsRecently, Alphabet Inc.'s (GOOG) (GOOGL) Google Cloud has also increased its margins.Alibaba has been trying hard to improve the EBITA margin in the last few quarters. A Bloomberg report mentioned that the company had completed layoffs of 20,000 in 2023. While the slowdown in revenue growth in core business is a headwind, Alibaba has tried to improve its margins and profitability. It is highly likely that Alibaba would be able to close the gap with AWS as it continues to invest in new tools and chips.The international commerce business is another strong segment for the company. It reported revenue of $4 billion in the recent quarter. This is 12% of the consolidated revenue base of $33 billion. The YoY growth rate of international commerce is 32% which should help increase the revenue share of this segment. If the current trend continues, international business could contribute over 20% of the revenue share by the end of the next fiscal. This should reduce the geographic risk associated with the stock and possibly improve the valuation multiple.Change in the geopolitical landscapeOne of the key reasons keeping Alibaba stock low is geopolitical uncertainty. Many bearish analysts have pointed out that the next administration could be more hawkish in its foreign policy which would hurt the sentiment towards the stock. However, there is a major fallacy in this argument. A more hawkish foreign policy by the White House should reduce geopolitical uncertainty. Wall Street hates uncertainty and a clear foreign policy guidance could end up helping Alibaba and other China-based stocks.This is counter-intuitive, but a very hawkish administration can prevent regional issues from turning into a big escalation. It is difficult to quantify this theory, but we have seen in the past few decades that a strong foreign policy from the White House can reduce geopolitical tensions in key regions.It should be noted that during the previous White House administration, Alibaba stock increased from $90 in 2017 to $300 by the last quarter of 2020.YChartsFigure: Stock performance of Alibaba, JD, and Tencent during the previous administration. Source: YChartsThe above chart shows the strong performance of Alibaba and other Chinese stocks during the previous administration. Despite the rhetoric, a very hawkish policy in the previous administration reduced the geopolitical uncertainty. This helped Alibaba as the stock was priced based on fundamentals instead of external factors.Future stock trajectoryAlibaba did not meet the revenue and income estimates of Wall Street in recent earnings. However, the stock has still gained close to 10% post earnings in the last few days. One explanation is that Alibaba has moved away from the worst-case scenario. It has also reported good numbers in key segments like cloud, international commerce, Cainiao, and Local Services Group. The core e-commerce business continues to be a drag in terms of revenue growth, but the margins are still quite good. Rapid improvement in Cloud margins should improve the overall EBITA and EPS trajectory for the company.YChartsFigure: Key metrics of Alibaba, JD, and Baidu. Source: YChartsAlmost all Chinese stocks are reporting low YoY revenue growth as the economy in China continues to underperform. However, Alibaba has a number of tailwinds working in its favor. The rapid increase in the revenue share of international commerce should reduce the geographic risk. Alibaba's massive buyback program increases the likelihood that the company will post double-digit EPS growth as the outstanding shares are reduced quickly. We could also see better cloud revenue growth as new AI tools are launched by Alibaba.A poor performance by the economy can also force the government in China to increase fiscal measures. We have already seen some support for the property sector. This could boost customer confidence and be a tailwind for Alibaba. Finally, a more hawkish foreign policy by the next White House administration could reduce the uncertainty surrounding geopolitics in this region.There are still several risks associated with Alibaba. One of the key risks is the lack of revenue growth in core commerce which is pulling down the overall growth metrics. Another risk is that if the situation in Taiwan escalates it would significantly hurt the sentiment towards the stock. However, it is likely that the positives far outweigh the negatives and with a rock-bottom valuation, Alibaba stock looks quite attractive.Investor TakeawayAlibaba has missed estimates in the recent earnings, but the stock has gained close to 10% in the last few days as the market focuses on the positive numbers. The cloud division is showing rapid profit margin growth which should boost the overall profitability. The increase in the revenue share of international commerce also reduces the risk associated with Alibaba.At a forward PE ratio of less than 10, the stock looks attractive. The company has strong FCF and is investing heavily in share repurchases which should boost the EPS growth significantly. The geopolitical risks are a concern, but there are strong fundamental tailwinds that can deliver a good upside for the stock in the next few quarters.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":343561797619744,"gmtCreate":1724906890714,"gmtModify":1724906894683,"author":{"id":"4088135301967120","authorId":"4088135301967120","name":"King19","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"4088135301967120","authorIdStr":"4088135301967120"},"htmlText":"For once, I have to agreed with this guy. Baba has been a value trapped for a while and I think it's time this rocket starts flying to the moon in the next qtr 😃 What do you think?","listText":"For once, I have to agreed with this guy. Baba has been a value trapped for a while and I think it's time this rocket starts flying to the moon in the next qtr 😃 What do you think?","text":"For once, I have to agreed with this guy. Baba has been a value trapped for a while and I think it's time this rocket starts flying to the moon in the next qtr 😃 What do you think?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/343561797619744","repostId":2463495517,"repostType":2,"repost":{"id":"2463495517","kind":"highlight","pubTimestamp":1724902041,"share":"https://ttm.financial/m/news/2463495517?lang=&edition=fundamental","pubTime":"2024-08-29 11:27","market":"fut","language":"en","title":"Alibaba Keeps On Rewarding Investors As New Silver Linings Emerge","url":"https://stock-news.laohu8.com/highlight/detail?id=2463495517","media":"seekingalpha","summary":"Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% gro","content":"<html><head></head><body><ul style=\"\"><li><p>Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.</p></li><li><p>Alibaba’s cloud operation showed 155% growth in EBITA and the annualized EBITA of cloud business has reached $1.2 billion or 9% of the revenue base.</p></li><li><p>The company repurchased stock worth $5.8 billion and has expunged 77 million shares or 3.2% of the outstanding shares in a single quarter.</p></li><li><p>The EPS growth estimate for the next two years is in double-digits, which improves the sentiment towards the stock.</p></li><li><p>Despite concerns by many analysts, a more hawkish foreign policy by the next administration in the US could be a tailwind towards Alibaba stock by reducing geopolitical uncertainty.</p></li></ul><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/462cd3697f83bcec3578c700effe99fc\" tg-width=\"750\" tg-height=\"500\"/></p><p>maybefalse/iStock Unreleased via Getty Images</p><p></p><p>Alibaba Group Holding Limited&#39;s (NYSE:BABA) recent earnings did not meet expectations in terms of revenue estimate. However, Alibaba stock has pushed higher over the last few days as the extreme bearish sentiment towards the company reduced. There were several silver linings in the recent earnings which should impress long-term investors. Alibaba is rewarding investors through massive buybacks. In the recent quarter, the company purchased $5.8 billion worth of stock which expunged 77 million shares or 3.2% of the outstanding 2.4 billion shares. On an annualized basis, this is equal to more than 12.8%. Alibaba has another $26 billion within its current buyback program. The massive FCF should allow the company to maintain the current investment in buybacks. In the previous article, it was mentioned that Alibaba&#39;s new growth initiatives could provide an additional tailwind to the stock.</p><p>On the other hand, Alibaba&#39;s cloud business has started showing better margins. The EBITA for cloud business increased to $322 million or $1.2 billion on an annualized basis with 155% YoY growth. The EBITA margin in the cloud segment has increased from 3.5% in the year-ago quarter to 9% in the recent quarter. The revenue share of international commerce has increased to 12% of the consolidated revenue base and is growing at a rapid pace which should reduce the geographic risk. EPS estimates for the next two years show double-digit growth which should boost sentiment as the company improves the growth trajectory outside the Taobao and Tmall segments.</p><p>The elephant in the room is the geopolitical risk which has pushed down the valuation multiple of all China-based stocks. Many analysts believe that the next administration in the White House could have a more hawkish foreign policy which might hurt Alibaba and other Chinese stocks. However, a more hawkish foreign policy could reduce the geopolitical uncertainty which in turn could end up being a good tailwind for Alibaba stock.</p><h2 id=\"id_1116654823\">Rewarding investors through buybacks</h2><p>Alibaba has ramped up its investment in share repurchases. In the recent quarter, Alibaba spent a staggering $5.8 billion on share repurchase which reduced the share count by 77 million. The outstanding shares now stand at 2.37 billion. In a single quarter, Alibaba reduced the outstanding shares by 3.2% or 12.8% on an annualized basis. The company produced FCF of $24 billion in the trailing twelve months. It has ramped up investment in Alibaba Cloud but the current FCF should allow the company to continue the share repurchase program. The remaining amount in the share repurchase program was $26 billion.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/e135239f4cafdf1bb545f9ddd22b955b\" tg-width=\"922\" tg-height=\"393\"/></p><p>Alibaba Filings</p><p></p><p>Figure: Increase in share repurchase by Alibaba in the last few quarters. Source: Alibaba Filings</p><p>This buyback pace should help improve the EPS trajectory over the next few quarters. The EPS estimate for the next two fiscal years shows a double-digit growth. The EPS estimate for the fiscal year ending March 2026 is $9.88 which gives it a forward PE of only 8.6. The forward PE for the fiscal year ending March 2027 is 7.86.</p><p>Even if the company delivers low single-digit revenue growth in its core business, the buybacks should allow Alibaba to gain good EPS growth. There are enough resources to continue the current buyback pace and the rock-bottom valuation multiple could make the management invest more in buybacks.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/2debebe093f07279927bfa0557f21983\" tg-width=\"1046\" tg-height=\"187\"/></p><p>Seeking Alpha</p><p></p><p>Figure: EPS estimate of Alibaba in the next few years. Source: Seeking Alpha</p><h2 id=\"id_2615242362\">Silver linings in recent earnings</h2><p>Despite missing revenue and net income estimates in the recent earnings, Alibaba has reported several strong metrics that can boost sentiment in the near term. One of the key growth drivers for Alibaba is the cloud business. The company has reported EBITA of $322 million in cloud business or $1.2 billion on an annualized basis. In the year-ago quarter, the Cloud business reported an EBITA of RMB 916 million or 3.5% EBITA margin. In the recent quarter, the EBITA margin has increased to 9% which is more than 5 percentage points higher than the year-ago quarter. This shows the ability of the company to rapidly increase margins despite high competition within the domestic market.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/c4d4af632ee0d37b740787091d85bb76\" tg-width=\"771\" tg-height=\"239\"/></p><p>Alibaba Filings</p><p></p><p>Figure: Improvement in EBITA of cloud business. Source: Alibaba Filings</p><p>The cloud revenue was $3.6 billion and it reported 6% YoY growth. This shows that the EBITA margin for cloud business has increased to 9% from a negative margin a few quarters back. However, Alibaba can still expand this margin. We have seen Amazon.com, Inc.&#39;s (AMZN) AWS continue to deliver an operating margin of close to 30% for a number of years.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/290bbd15a9ebc5d3845d58135f39520d\" tg-width=\"640\" tg-height=\"253\"/></p><p>Amazon Filings</p><p></p><p>Figure: AWS metrics of Amazon. Source: Amazon Filings</p><p>Recently, Alphabet Inc.&#39;s (GOOG) (GOOGL) Google Cloud has also increased its margins.</p><p>Alibaba has been trying hard to improve the EBITA margin in the last few quarters. A Bloomberg report mentioned that the company had completed layoffs of 20,000 in 2023. While the slowdown in revenue growth in core business is a headwind, Alibaba has tried to improve its margins and profitability. It is highly likely that Alibaba would be able to close the gap with AWS as it continues to invest in new tools and chips.</p><p>The international commerce business is another strong segment for the company. It reported revenue of $4 billion in the recent quarter. This is 12% of the consolidated revenue base of $33 billion. The YoY growth rate of international commerce is 32% which should help increase the revenue share of this segment. If the current trend continues, international business could contribute over 20% of the revenue share by the end of the next fiscal. This should reduce the geographic risk associated with the stock and possibly improve the valuation multiple.</p><h2 id=\"id_2063157062\">Change in the geopolitical landscape</h2><p>One of the key reasons keeping Alibaba stock low is geopolitical uncertainty. Many bearish analysts have pointed out that the next administration could be more hawkish in its foreign policy which would hurt the sentiment towards the stock. However, there is a major fallacy in this argument. A more hawkish foreign policy by the White House should reduce geopolitical uncertainty. Wall Street hates uncertainty and a clear foreign policy guidance could end up helping Alibaba and other China-based stocks.</p><p>This is counter-intuitive, but a very hawkish administration can prevent regional issues from turning into a big escalation. It is difficult to quantify this theory, but we have seen in the past few decades that a strong foreign policy from the White House can reduce geopolitical tensions in key regions.</p><p>It should be noted that during the previous White House administration, Alibaba stock increased from $90 in 2017 to $300 by the last quarter of 2020.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/211fdb05e2aff180f67f00b1ac76e897\" tg-width=\"976\" tg-height=\"402\"/></p><p>YCharts</p><p></p><p>Figure: Stock performance of Alibaba, JD, and Tencent during the previous administration. Source: YCharts</p><p>The above chart shows the strong performance of Alibaba and other Chinese stocks during the previous administration. Despite the rhetoric, a very hawkish policy in the previous administration reduced the geopolitical uncertainty. This helped Alibaba as the stock was priced based on fundamentals instead of external factors.</p><h2 id=\"id_43558342\">Future stock trajectory</h2><p>Alibaba did not meet the revenue and income estimates of Wall Street in recent earnings. However, the stock has still gained close to 10% post earnings in the last few days. One explanation is that Alibaba has moved away from the worst-case scenario. It has also reported good numbers in key segments like cloud, international commerce, Cainiao, and Local Services Group. The core e-commerce business continues to be a drag in terms of revenue growth, but the margins are still quite good. Rapid improvement in Cloud margins should improve the overall EBITA and EPS trajectory for the company.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/260c22d5bbf3c54b2cc9bea76c53e187\" tg-width=\"973\" tg-height=\"398\"/></p><p>YCharts</p><p></p><p>Figure: Key metrics of Alibaba, JD, and Baidu. Source: YCharts</p><p>Almost all Chinese stocks are reporting low YoY revenue growth as the economy in China continues to underperform. However, Alibaba has a number of tailwinds working in its favor. The rapid increase in the revenue share of international commerce should reduce the geographic risk. Alibaba&#39;s massive buyback program increases the likelihood that the company will post double-digit EPS growth as the outstanding shares are reduced quickly. We could also see better cloud revenue growth as new AI tools are launched by Alibaba.</p><p>A poor performance by the economy can also force the government in China to increase fiscal measures. We have already seen some support for the property sector. This could boost customer confidence and be a tailwind for Alibaba. Finally, a more hawkish foreign policy by the next White House administration could reduce the uncertainty surrounding geopolitics in this region.</p><p>There are still several risks associated with Alibaba. One of the key risks is the lack of revenue growth in core commerce which is pulling down the overall growth metrics. Another risk is that if the situation in Taiwan escalates it would significantly hurt the sentiment towards the stock. However, it is likely that the positives far outweigh the negatives and with a rock-bottom valuation, Alibaba stock looks quite attractive.</p><h2 id=\"id_3777745713\">Investor Takeaway</h2><p>Alibaba has missed estimates in the recent earnings, but the stock has gained close to 10% in the last few days as the market focuses on the positive numbers. The cloud division is showing rapid profit margin growth which should boost the overall profitability. The increase in the revenue share of international commerce also reduces the risk associated with Alibaba.</p><p>At a forward PE ratio of less than 10, the stock looks attractive. The company has strong FCF and is investing heavily in share repurchases which should boost the EPS growth significantly. The geopolitical risks are a concern, but there are strong fundamental tailwinds that can deliver a good upside for the stock in the next few quarters.</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 Keeps On Rewarding Investors As New Silver Linings Emerge</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 Keeps On Rewarding Investors As New Silver Linings Emerge\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-29 11:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% ...</p>\n\n<a href=\"https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09988":"阿里巴巴-W","BABA":"阿里巴巴"},"source_url":"https://seekingalpha.com/article/4717643-alibaba-keeps-on-rewarding-investors-as-new-silver-linings-emerge","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2463495517","content_text":"Alibaba’s recent earnings failed to impress Wall Street, but there were several silver linings that can turn the stock into a good option at the current price.Alibaba’s cloud operation showed 155% growth in EBITA and the annualized EBITA of cloud business has reached $1.2 billion or 9% of the revenue base.The company repurchased stock worth $5.8 billion and has expunged 77 million shares or 3.2% of the outstanding shares in a single quarter.The EPS growth estimate for the next two years is in double-digits, which improves the sentiment towards the stock.Despite concerns by many analysts, a more hawkish foreign policy by the next administration in the US could be a tailwind towards Alibaba stock by reducing geopolitical uncertainty.maybefalse/iStock Unreleased via Getty ImagesAlibaba Group Holding Limited's (NYSE:BABA) recent earnings did not meet expectations in terms of revenue estimate. However, Alibaba stock has pushed higher over the last few days as the extreme bearish sentiment towards the company reduced. There were several silver linings in the recent earnings which should impress long-term investors. Alibaba is rewarding investors through massive buybacks. In the recent quarter, the company purchased $5.8 billion worth of stock which expunged 77 million shares or 3.2% of the outstanding 2.4 billion shares. On an annualized basis, this is equal to more than 12.8%. Alibaba has another $26 billion within its current buyback program. The massive FCF should allow the company to maintain the current investment in buybacks. In the previous article, it was mentioned that Alibaba's new growth initiatives could provide an additional tailwind to the stock.On the other hand, Alibaba's cloud business has started showing better margins. The EBITA for cloud business increased to $322 million or $1.2 billion on an annualized basis with 155% YoY growth. The EBITA margin in the cloud segment has increased from 3.5% in the year-ago quarter to 9% in the recent quarter. The revenue share of international commerce has increased to 12% of the consolidated revenue base and is growing at a rapid pace which should reduce the geographic risk. EPS estimates for the next two years show double-digit growth which should boost sentiment as the company improves the growth trajectory outside the Taobao and Tmall segments.The elephant in the room is the geopolitical risk which has pushed down the valuation multiple of all China-based stocks. Many analysts believe that the next administration in the White House could have a more hawkish foreign policy which might hurt Alibaba and other Chinese stocks. However, a more hawkish foreign policy could reduce the geopolitical uncertainty which in turn could end up being a good tailwind for Alibaba stock.Rewarding investors through buybacksAlibaba has ramped up its investment in share repurchases. In the recent quarter, Alibaba spent a staggering $5.8 billion on share repurchase which reduced the share count by 77 million. The outstanding shares now stand at 2.37 billion. In a single quarter, Alibaba reduced the outstanding shares by 3.2% or 12.8% on an annualized basis. The company produced FCF of $24 billion in the trailing twelve months. It has ramped up investment in Alibaba Cloud but the current FCF should allow the company to continue the share repurchase program. The remaining amount in the share repurchase program was $26 billion.Alibaba FilingsFigure: Increase in share repurchase by Alibaba in the last few quarters. Source: Alibaba FilingsThis buyback pace should help improve the EPS trajectory over the next few quarters. The EPS estimate for the next two fiscal years shows a double-digit growth. The EPS estimate for the fiscal year ending March 2026 is $9.88 which gives it a forward PE of only 8.6. The forward PE for the fiscal year ending March 2027 is 7.86.Even if the company delivers low single-digit revenue growth in its core business, the buybacks should allow Alibaba to gain good EPS growth. There are enough resources to continue the current buyback pace and the rock-bottom valuation multiple could make the management invest more in buybacks.Seeking AlphaFigure: EPS estimate of Alibaba in the next few years. Source: Seeking AlphaSilver linings in recent earningsDespite missing revenue and net income estimates in the recent earnings, Alibaba has reported several strong metrics that can boost sentiment in the near term. One of the key growth drivers for Alibaba is the cloud business. The company has reported EBITA of $322 million in cloud business or $1.2 billion on an annualized basis. In the year-ago quarter, the Cloud business reported an EBITA of RMB 916 million or 3.5% EBITA margin. In the recent quarter, the EBITA margin has increased to 9% which is more than 5 percentage points higher than the year-ago quarter. This shows the ability of the company to rapidly increase margins despite high competition within the domestic market.Alibaba FilingsFigure: Improvement in EBITA of cloud business. Source: Alibaba FilingsThe cloud revenue was $3.6 billion and it reported 6% YoY growth. This shows that the EBITA margin for cloud business has increased to 9% from a negative margin a few quarters back. However, Alibaba can still expand this margin. We have seen Amazon.com, Inc.'s (AMZN) AWS continue to deliver an operating margin of close to 30% for a number of years.Amazon FilingsFigure: AWS metrics of Amazon. Source: Amazon FilingsRecently, Alphabet Inc.'s (GOOG) (GOOGL) Google Cloud has also increased its margins.Alibaba has been trying hard to improve the EBITA margin in the last few quarters. A Bloomberg report mentioned that the company had completed layoffs of 20,000 in 2023. While the slowdown in revenue growth in core business is a headwind, Alibaba has tried to improve its margins and profitability. It is highly likely that Alibaba would be able to close the gap with AWS as it continues to invest in new tools and chips.The international commerce business is another strong segment for the company. It reported revenue of $4 billion in the recent quarter. This is 12% of the consolidated revenue base of $33 billion. The YoY growth rate of international commerce is 32% which should help increase the revenue share of this segment. If the current trend continues, international business could contribute over 20% of the revenue share by the end of the next fiscal. This should reduce the geographic risk associated with the stock and possibly improve the valuation multiple.Change in the geopolitical landscapeOne of the key reasons keeping Alibaba stock low is geopolitical uncertainty. Many bearish analysts have pointed out that the next administration could be more hawkish in its foreign policy which would hurt the sentiment towards the stock. However, there is a major fallacy in this argument. A more hawkish foreign policy by the White House should reduce geopolitical uncertainty. Wall Street hates uncertainty and a clear foreign policy guidance could end up helping Alibaba and other China-based stocks.This is counter-intuitive, but a very hawkish administration can prevent regional issues from turning into a big escalation. It is difficult to quantify this theory, but we have seen in the past few decades that a strong foreign policy from the White House can reduce geopolitical tensions in key regions.It should be noted that during the previous White House administration, Alibaba stock increased from $90 in 2017 to $300 by the last quarter of 2020.YChartsFigure: Stock performance of Alibaba, JD, and Tencent during the previous administration. Source: YChartsThe above chart shows the strong performance of Alibaba and other Chinese stocks during the previous administration. Despite the rhetoric, a very hawkish policy in the previous administration reduced the geopolitical uncertainty. This helped Alibaba as the stock was priced based on fundamentals instead of external factors.Future stock trajectoryAlibaba did not meet the revenue and income estimates of Wall Street in recent earnings. However, the stock has still gained close to 10% post earnings in the last few days. One explanation is that Alibaba has moved away from the worst-case scenario. It has also reported good numbers in key segments like cloud, international commerce, Cainiao, and Local Services Group. The core e-commerce business continues to be a drag in terms of revenue growth, but the margins are still quite good. Rapid improvement in Cloud margins should improve the overall EBITA and EPS trajectory for the company.YChartsFigure: Key metrics of Alibaba, JD, and Baidu. Source: YChartsAlmost all Chinese stocks are reporting low YoY revenue growth as the economy in China continues to underperform. However, Alibaba has a number of tailwinds working in its favor. The rapid increase in the revenue share of international commerce should reduce the geographic risk. Alibaba's massive buyback program increases the likelihood that the company will post double-digit EPS growth as the outstanding shares are reduced quickly. We could also see better cloud revenue growth as new AI tools are launched by Alibaba.A poor performance by the economy can also force the government in China to increase fiscal measures. We have already seen some support for the property sector. This could boost customer confidence and be a tailwind for Alibaba. Finally, a more hawkish foreign policy by the next White House administration could reduce the uncertainty surrounding geopolitics in this region.There are still several risks associated with Alibaba. One of the key risks is the lack of revenue growth in core commerce which is pulling down the overall growth metrics. Another risk is that if the situation in Taiwan escalates it would significantly hurt the sentiment towards the stock. However, it is likely that the positives far outweigh the negatives and with a rock-bottom valuation, Alibaba stock looks quite attractive.Investor TakeawayAlibaba has missed estimates in the recent earnings, but the stock has gained close to 10% in the last few days as the market focuses on the positive numbers. The cloud division is showing rapid profit margin growth which should boost the overall profitability. The increase in the revenue share of international commerce also reduces the risk associated with Alibaba.At a forward PE ratio of less than 10, the stock looks attractive. The company has strong FCF and is investing heavily in share repurchases which should boost the EPS growth significantly. The geopolitical risks are a concern, but there are strong fundamental tailwinds that can deliver a good upside for the stock in the next few quarters.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":7,"commentSize":2,"repostSize":2,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}