Alibaba Group Holding Limited

BABA Details

Alibaba Group Holding Limited (NYSE: BABA) is the world's largest online and mobile commerce corporation in gross merchandise volume (GMV). It operates China's online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-business) (business-to-consumer). Additional revenue sources include China commerce wholesale, worldwide retail/wholesale marketplaces, cloud computing, digital media and entertainment platforms, Cainiao logistics services, and innovation initiatives/others. BABA has 2.72 billion American Depository Shares (ADS) listed and outstanding (each ADS representing eight ordinary shares).

Robust Q3FY22 Results:

• Upsurge in Topline: Overall revenue increased 9.72% year on year to RMB 242.58 billion in Q3FY22 (ended December 31, 2021), up from RMB 221.08 billion in Q3FY21, owing to segment revenue growth in China commerce, Cloud, Local consumer services, and International commerce.
• Improvement in Active Consumers: The number of worldwide BABA users was approximately 1.28 billion for the twelve months ended December 31, 2021, an increase of roughly 43 million from the twelve months ended September 30, 2021.
• Healthy Balance Sheet: As of December 31, 2021, the company has RMB 494.93 billion in cash and cash equivalents (including short-term investments) and RMB 139.64 billion in total debt.

Key Risks:

• Reliance on Alipay: Most of BABA's payment processing and escrow services are handled by Alipay. In fiscal year 21, Alipay was used to settle 70% of its Gross Merchandise Value (GMV) in the China retail sector. As a result, any decline in its quality, usability, convenience, or attractiveness may harm corporate operations and cash flow.
• Political and Regulatory Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (if the US authorities cannot satisfactorily audit the company for three consecutive years).

Valuation Methodology: Price/Cash Flow Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

BABA's share price has remained on a bearish trend, fallen 63.33% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 73.28 to USD 245.69. We have valued the stock using the Price/Cash Flow multiple based relative valuation methodology and arrived at a target price of USD 109.61.

Considering the bearish trend of the stock, strong fundamentals, healthy balance sheet, market dominance, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 76.76, as of March 15, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Three-Year Technical Price Chart (as of March 15, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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