To The Moon

$Alibaba(BABA)$ Bullish Outlook on Alibaba Stock: Here's Why

Alibaba's recent financial performance has exceeded analysts' expectations, contributing to a potentially bullish outlook on the company's stock. For the fourth quarter of fiscal 2023, which ended on March 31, Alibaba's revenue rose 2% year over year to 208.2 billion yuan ($30.3 billion), surpassing analysts' predictions by $410 million. Its adjusted net income also increased 38% to 27.4 billion yuan ($4.0 billion), exceeding consensus forecasts by $0.21 per share1. Despite a challenging year, Alibaba's total revenue and adjusted earnings per ADS grew 2% and 4%, respectively1.

While Alibaba's stock has suffered a more than 70% drop from its all-time high in October 2020, the company has shown resilience in the face of adversity. The Chinese tech giant has had to navigate a series of regulatory, competitive, and macroeconomic hurdles, including a record $2.8 billion antitrust fine and increased competition from other e-commerce platforms in China. The economic slowdown in China and the ongoing impact of the COVID-19 pandemic have also posed challenges, leading to a slowdown in consumer spending and forcing companies to curtail their spending on Alibaba's cloud services1.

Despite these setbacks, Alibaba has exhibited notable growth in key areas. In fiscal 2023, the company generated 67% of its revenue from its China Commerce segment, which includes Tmall, Taobao, and its brick-and-mortar stores. Alibaba Cloud, the largest cloud platform in China, contributed another 9% to the company's revenue. While there has been a slowdown in growth, Alibaba has managed to expand its operating margin from 8% in fiscal 2022 to 12% in fiscal 2023. This expansion was largely driven by significant cost-cutting measures, including about 19,000 layoffs throughout 20221.

Looking ahead, Alibaba has ambitious plans for future growth. The company is planning to split its business into six new groups, each to be led by a different CEO, with most of them pursuing fresh funding or IPOs. This restructuring strategy is designed to allow these business groups to seek external financing and make independent decisions without impacting Alibaba's other divisions. Notably, Alibaba is preparing to spin off its entire cloud division in an IPO, distributing shares to its current shareholders as a special dividend. This move could relieve some of the financial pressure from Alibaba's own balance sheet1.

Alibaba's growth could accelerate again as China's economy begins to recover post-COVID. The spinoff of Alibaba Cloud is also likely to generate fresh cash and boost profits, potentially providing further incentives for a bullish outlook on Alibaba's stock1.

However, it's worth noting that Alibaba's stock is currently deemed cheap, and it may not command a premium anytime soon. It's crucial for potential investors to carefully consider Alibaba's prospects, the risks associated with investing in it, and their own investment strategies and risk tolerance before making a decision1.