Tag: Alibaba Group Holding Limited (BABA)

China’s Tech Crackdown Eases: Why Alibaba (BABA) Could Rebound Strongly

Posted on by The INO.com Team

After a protracted period of stringent regulatory oversight, China appears to be softening its stance on its tech sector. This shift marks a critical juncture for companies like Alibaba Group Holding Limited (BABA), which has weathered antitrust investigations, operational restructuring, and a shifting economic environment.

Alibaba, a giant in e-commerce and cloud computing, has been a bellwether for China's private sector. The company's extensive portfolio—from online marketplaces like Taobao and Tmall to its leadership in cloud infrastructure—positions it as a key player poised to benefit from regulatory normalization. As China pivots toward stimulating growth, Alibaba's strategic initiatives and market resilience are coming into sharper focus.

The Evolving Regulatory Landscape

China’s regulatory crackdown on tech companies, which began in late 2020, has gradually eased in recent months. Initially aimed at curbing monopolistic practices and data privacy concerns, the measures had an unintended side effect: slowing innovation and curbing economic momentum. In a bid to reinvigorate the economy, the Chinese government is adopting a more accommodative approach, encouraging private sector growth and investment.

Alibaba’s position as a leader in consumer-facing and enterprise solutions makes it particularly sensitive to regulatory winds. Recent adjustments, such as more flexible compliance timelines and a shift away from punitive measures, have lifted investor sentiment. Additionally, the government’s broader stimulus measures, including targeted subsidies and consumption incentives, align closely with Alibaba’s core business model. These policies not only stimulate spending but also create a fertile environment for Alibaba’s platforms to thrive, particularly as consumer confidence rebounds.

Strategic Moves in the Spotlight

Alibaba has demonstrated resilience and adaptability through this challenging period, with strategic initiatives aimed at fortifying its leadership across multiple domains.

The company’s e-commerce platforms, Taobao and Tmall, remain indispensable to millions of consumers and merchants in China. In the September 2024 quarter, Alibaba generated RMB 93 billion ($13.25 billion) in revenue from its China commerce retail business, supported by innovations like AI-driven marketing tools and enhanced membership benefits for high-value users. These initiatives have driven increased purchase frequency and stronger customer loyalty, which are vital for sustaining growth amidst fierce competition.

In the cloud computing arena, Alibaba is capitalizing on the global shift toward artificial intelligence. Cloud Intelligence Group reported a 7% year-over-year revenue growth, with AI-related products achieving remarkable triple-digit growth. This underscores Alibaba’s ability to harness cutting-edge technologies to capture emerging opportunities. Recent upgrades to its AI infrastructure and the introduction of cost-efficient solutions highlight its commitment to remaining at the forefront of this transformative sector.

On the international front, Alibaba’s cross-border commerce has shown robust growth, with revenue from platforms like AliExpress and Trendyol increasing by 35% in the latest quarter. These businesses have expanded their market share in Europe and the Gulf, leveraging localized strategies and Cainiao’s efficient logistics network. The success of the “AliExpressDirect” model, which optimizes inventory and fulfillment, further demonstrates Alibaba’s ability to innovate on a global scale.

Financial Performance and Market Sentiment

Alibaba’s financial results for the September 2024 quarter paint a mixed but encouraging picture. The company’s total revenue reached RMB 236.5 billion ($33.7 billion), reflecting a 5% year-over-year increase. While its adjusted EBITA declined by 5%, this was attributed to heightened investments in core businesses—a move viewed as laying the groundwork for long-term growth.

Investor confidence in Alibaba is buoyed by its aggressive share repurchase program. Over the last quarter, the company spent $4.1 billion to buy back 414 million shares, achieving a net reduction of 2.1% in its outstanding shares. This move not only signals Alibaba’s confidence in its valuation but also enhances shareholder value.

However, challenges persist. Free cash flow dropped significantly due to infrastructure investments and one-time merchant rebates. Nonetheless, Alibaba’s strong net cash position of $50.2 billion provides it with the flexibility to navigate these short-term pressures while continuing to invest in future growth.

Why Alibaba Deserves Investor Attention

As the regulatory clouds clear, Alibaba is emerging as a compelling investment opportunity. Analysts have highlighted its relatively low forward P/E (9.46x) compared to its industry peers (17.19x), suggesting room for upside. The easing regulatory environment is a tailwind, enabling the company to refocus on growth and innovation without the overhang of compliance uncertainty.

Moreover, Alibaba’s robust ecosystem—spanning commerce, cloud, logistics, and digital payments—offers significant synergies that amplify its competitive advantage. Risks remain, particularly geopolitical tensions and a highly competitive domestic market. Yet, for growth-oriented investors willing to accept the volatility associated with Chinese equities, Alibaba presents a unique mix of stability in its core operations and dynamism in its expansionary pursuits.

Given the improving macroeconomic outlook and the company’s strategic positioning, investors could consider accumulating Alibaba shares at current levels. The combination of its diversified revenue streams, disciplined capital management, and strong market presence makes it a stock to watch as the Chinese tech sector stages its recovery.

China’s $10 Trillion Stimulus: Is Alibaba (BABA) Set for a Surge?

Posted on by The INO.com Team

In a strategic response to a slowed economy, China is considering a significant fiscal move: a 10 trillion yuan ($1.4 trillion) stimulus aimed at revitalizing growth by bolstering local government debt management, supporting consumer spending, and stabilizing core economic sectors. This fiscal plan, as per recent reports, would be spread across multiple years, with large portions channeled through special-purpose bonds for infrastructure and other targeted areas.

Alibaba Group Holding Limited (BABA), a prominent figure in China’s e-commerce and cloud markets, stands to be impacted by this stimulus. With its strong foothold in retail via Taobao and Tmall and significant presence in cloud computing through Alibaba Cloud, Alibaba could see both opportunities and risks from China’s economic boost. Here’s a deeper dive into the implications of the stimulus for Alibaba’s stock and growth potential.

China’s Fiscal Stimulus and Its Aims 

China’s $1.4 trillion stimulus proposal focuses on a range of economic concerns, including managing local government debt, shoring up liquidity in the property market, and catalyzing consumer spending. The central government’s support will come through the issuance of special treasury and local bonds and initiatives that include funding for infrastructure projects. With high debt levels and a weakened property market threatening economic stability, this fiscal support could indirectly stimulate consumer activity by stabilizing financial pressures at the local level.

Historically, similar stimulus packages have buoyed consumer sentiment and increased disposable income, supporting higher spending across sectors like retail and technology. Alibaba, with its vast ecosystem encompassing e-commerce, cloud computing, logistics, and entertainment, could be well-positioned to capitalize on an uptick in consumer and business expenditure.

Alibaba’s Strategic Positioning Amid Economic Support 

Alibaba commands a substantial portion of China’s e-commerce market, with platforms like Taobao and Tmall playing central roles in the digital lives of millions. In the most recent quarter, Alibaba’s revenue from its China commerce segment hit RMB113.4 billion ($15.6 billion) despite a modest 1% drop year-over-year, attributed to investments in user experience and competitive pricing. These figures underscore Alibaba’s resiliency and the potential for further growth if consumer spending rises due to the stimulus.

Alibaba’s cloud segment also represents a significant growth avenue. Alibaba Cloud, leading the market in China, saw revenue reach RMB26.5 billion ($3.6 billion) in Q2 2024, marking a 6% increase year-over-year. In tandem with public cloud services, the company is expanding its AI-related offerings, which saw a triple-digit growth rate as more enterprises adopt AI infrastructure—a trend that may accelerate with more government-backed economic stability.

Beyond its core segments, Alibaba has diversified into areas such as logistics through Cainiao, local services, and international commerce, which grew by 32% in the past quarter. This breadth allows Alibaba to capture consumer spending across a variety of sectors, making it especially responsive to a stimulus-driven economic revival.

Navigating Risks: Regulation and Competition 

Despite the positive growth prospects, Alibaba faces certain risks that could temper the impact of the stimulus. One primary concern is regulatory scrutiny within China and abroad. Over the past few years, Chinese authorities have increased regulatory oversight on major tech companies, introducing policies aimed at data security, anti-monopoly actions, and fair competition. Any regulatory pressure could hinder Alibaba’s operational flexibility and investment capacity, particularly in the cloud and digital finance sectors.

Additionally, competition within China’s tech landscape is intense. E-commerce peers like JD.com, Inc. (JD) and Pinduoduo, as well as cloud competitors such as Tencent Holdings Limited (TCEHY), continuously challenge Alibaba’s market share. For instance, Alibaba’s adjusted EBITDA in its international digital commerce division showed an increased loss, reflecting substantial investments in global markets to fend off competition. As a result, Alibaba may need to balance between maintaining its competitive edge and managing profitability, especially in a period of high regulatory vigilance.

Investment Outlook: Assessing Alibaba’s Valuation and Growth Potential 

Investors evaluating Alibaba’s growth prospects in light of China’s stimulus should consider the company’s recent financial performance and market positioning. For Q1 2025, Alibaba reported revenues of $33.94 billion, a 4.6% year-over-year increase.

Furthermore, Alibaba has been proactive in managing shareholder value through stock repurchases, with a buyback program that saw $5.8 billion returned to shareholders. This shareholder-friendly approach, combined with stable operating metrics, positions Alibaba as an attractive option for those looking to capitalize on potential stimulus-fueled economic growth.

However, Alibaba’s valuation remains sensitive to external factors, including U.S.-China relations and global economic conditions. If China’s stimulus delivers on its promise, Alibaba could benefit from increased spending in consumer and business markets, likely providing a tailwind for the stock.

What Action Should Investors Take? 

Given the current climate, investors may consider Alibaba a cautiously optimistic buy, particularly for those with a higher risk tolerance. The potential for Alibaba to benefit from China’s large-scale fiscal stimulus, coupled with its established market dominance, makes it a promising candidate in the e-commerce and cloud sectors. However, the regulatory environment and competitive landscape warrant a conservative approach. Long-term investors might see the benefits of holding Alibaba, as growth in cloud computing and AI could continue to provide meaningful returns, especially if the stimulus bolsters consumer confidence and spending.

For those more risk-averse, staying on the sidelines or taking a smaller position could be advisable, as regulatory developments and global economic shifts may affect Alibaba’s stock in unpredictable ways. In short, Alibaba offers potential for growth in a recovering Chinese economy, but careful attention to policy and competition is essential for investors looking to navigate this complex market.

Alibaba's (BABA) Secret Weapon for Future Growth

Posted on by The INO.com Team

Amid challenging regulatory pressures, economic headwinds, and fierce market competition, Alibaba Group Holding Limited (BABA) has showcased a resilient performance, as evidenced by its latest quarterly results. Shares of the Chinese e-commerce giant have gained more than 7% over the past three months. Moreover, the stock is trading above its 50-day and 200-day moving averages of $76.20 and $78.79, respectively, reflecting a solid momentum.

Alibaba's diverse business portfolio continues to be a driving force behind its steady financial performance. For the fourth quarter that ended March 31, 2024, BABA’s revenue increased 7% year-over-year to $30.73 billion, beating the analysts’ estimate of $30.42 billion. The growth was driven by robust performances across its core e-commerce and cloud computing segments.

BABA’s strategic investments in Alibaba Cloud infrastructure and its domestic and international e-commerce platforms have spurred double-digit growth in key metrics such as gross merchandise value (GMV). Yet, the company’s income from operations dipped 3% from the prior-year quarter to $2.05 billion.

Navigating through cautious consumer spending in China, Alibaba has observed early signs of recovery in its primary e-commerce operations. Revenue from the Taobao and Tmall Group increased 4% year-over-year to $12.91 billion, while customer management revenue grew 5%, rebounding from a previously flat quarter. Also, revenue from the Alibaba International Digital Commerce Group (AIDC) surged 45% year-over-year to $3.80 billion.

BABA’s CEO Eddie Wu's commitment to ‘reignite’ growth through further investments is beginning to yield results, as he noted the strategies were “working and we are returning to growth.”

But What's Behind This Robust Growth?

Alibaba’s secret weapon lies in its digital technology and intelligence arm, Alibaba’s Cloud Intelligence Group, which stood as the company’s second-largest revenue generator last year. Revenue from this segment rose 3% year-over-year to $3.54 billion, driven by the double-digit growth of its public cloud business. Core offerings like elastic computing, databases, and AI products led to a notable triple-digit growth in AI-related revenue in the fourth quarter alone. This surge in demand for advanced AI solutions positions the company to capitalize on the burgeoning AI market.

To foster long-term growth and attract startups and small businesses, Alibaba aggressively slashed prices on over 100 core public cloud products (including Elastic Compute Service (ECS), Object Storage Service, and database product categories) in China. This initiative was later extended globally in April with a 23% average price reduction. Customers ordering through Alibaba’s official website can now enjoy discounts of up to 59% on computing, storage, network, database, and big data products.

“Cloud infrastructure is poised to be the key cornerstone for the future of AI, and our commitment lies in making sure that the foundation for AI development remains affordable,” said Selina Yuan, President of the International Business of Alibaba Cloud Intelligence.

Moreover, Alibaba Cloud's AI capabilities have rapidly gained traction, with over 90,000 enterprises adopting the Qwen large language model (LLM) within a year of its debut and more than 7 million downloads on open-source platforms like Github. Alibaba Cloud introduced Qwen2.5, the latest addition to its Qwen model family, to meet the growing demand for AI solutions.

Furthermore, Alibaba Cloud recently launched a service to help companies customize and scale generative AI models, from consolidating multiple models to optimizing underlying infrastructure resources. The PAI-Lingjun Intelligent Computing Service, an AI computing platform tailored for high-performance computing tasks, also expanded its reach to Singapore for the first time this year.

Also, the group's strategic focus on public cloud and operational efficiency resulted in an impressive 49% year-over-year increase in adjusted EBITDA to $848 million in fiscal year 2024. Such growth figures solidify Alibaba Cloud’s role as a crucial driver of the company's future growth.

Is Price Cuts a Strategic Initiative or a Race to the Bottom?

Alibaba’s recent move to reduce prices across its cloud services has stirred the market. Some say it's a smart move to attract more customers (especially with the growing demand for AI services), while others fear it could hurt profits in the long run.

With enterprises’ expenditure on generative AI services expected to reach $143 billion in 2027 globally, the timing of BABA's price adjustments appears strategic, positioning the company to tap into this growing market.

Meanwhile, BABA's price cuts have sparked a price war among Chinese tech giants, with Baidu Cloud and ByteDance quickly following suit with their competitive offerings. While these cuts benefit consumers, Alibaba’s footing in the global marketplace is tenuous. Despite holding over 30% of China's Infrastructure as a Service market, Alibaba still trails behind AWS in the broader Asia Pacific region. Alibaba Cloud commands only a small fraction of the global cloud computing market, where AWS, Microsoft Azure, and Google Cloud dominate the landscape.

Making headway against these industry giants is not easy, especially considering their strong foothold in Western markets. While the price cuts may attract budget-conscious customers and bolster Alibaba's presence in emerging markets, success hinges on maintaining high-quality service and innovation in the long run. Only time will tell if Alibaba's gamble pays off.

Bottom Line

BABA reported a beat in revenue in the fourth quarter of fiscal 2024; however, the e-commerce giant’s earnings plunged. Despite a weak bottom line, CFO Toby Xu expressed confidence in the company's business outlook, citing early positive results from strategic investments and partnerships. Alibaba sees AI as a significant driver of innovation and value creation within its ecosystem.

During the March quarter, AI-related revenue delivered “triple-digit growth year-over-year.” The revenue was generated from foundational model companies and internet companies, as well as customers from the financial services and automotive industries.

Analysts expect BABA’s revenue for the first quarter (ending June 2024) to increase 5.1% year-over-year to $34.10 billion. However, its EPS for the ongoing quarter is expected to decline by 15.6% year-over-year to $2.03. Further, for the fiscal year 2025, Alibaba’s revenue is forecasted to reach $140.92 billion (up 8.3% year-over-year), while the consensus EPS estimate of $8.23 indicates a 4.4% decline from the prior year.

In terms of forward non-GAAP P/E, BABA is trading at 9.61x, 39.5% lower than the industry average of 15.88x. Similarly, the stock’s forward EV/EBITDA and Price/Book multiples of 5.94 and 1.31 are 39% and 45.3% lower than the industry averages of 9.73 and 2.40, respectively.

In response to its low valuation, Alibaba's management repurchased $4.8 billion worth of shares during the fourth quarter. Moreover, earlier this year, the company bolstered its share buyback program by an additional $25 billion, extending it through the end of March 2027.

In further demonstrating its commitment to returning value to shareholders, BABA approved a two-part dividend plan totaling $4 billion. This plan includes a regular cash dividend of $0.125 per ordinary share or $1 per ADS in FY24 and a one-time extraordinary cash dividend of $0.0825 per ordinary share or $0.66 per ADS. Both dividends will be paid out in U.S. dollars to holders of ordinary shares and ADS holders as of the close of business on June 13, 2024.

While the impact of price reductions on Alibaba's bottom line remains to be seen, achieving double-digit revenue growth across its specific segments amid strategic pricing adjustments underscores the company's resilience and adaptability in an ever-evolving market landscape.

Short-Term Gains vs. Long-Term Risks: Evaluating Chinese Stocks in Your Portfolio

Posted on by The INO.com Team

Over the past half-decade, China has implemented unpredictable and business-unfriendly policies, including the world's longest-lasting COVID-19 lockdown, making it a challenging environment for investment. A poll conducted at a Goldman Sachs conference in Hong Kong in early February indicated that over 40% of attendees considered China ‘uninvestable.’

Major companies like Apple Inc. (AAPL) and Samsung are also shifting their supply chains away from China, and many others are not planning future investments in this previously coveted market.

As the Chinese economy grapples with market weakness, the New York Times reported a shift in the government’s stance towards more business-friendly policies.

Moreover, JPMorgan analysts are optimistic about the continuation of positive China trading trends, predicting this momentum could extend through the summer. While longer-term structural concerns such as deflationary backdrop, excess capacity, real-estate demand-supply imbalances, credit saturation, and global decoupling persist, analysts believe the worst of the housing market weakness is over. And that should keep the rally going.

Last week, Alibaba Group Holding Limited (BABA), JD.com, Inc. (JD), and Baidu, Inc. (BIDU) released their quarterly results, revealing that growth, although modest, continues. Their management teams are effectively delivering on efficiencies and enhancing shareholder value.

BABA shares have gained more than 8% over the past five days, while JD saw marginal gains over the same period. Although down 4% in the past week, BIDU has logged nearly a 7% gain over the past month.

Meanwhile, the iShares MSCI China exchange-traded fund (MCHI) climbed 17% over the past month, outpacing the S&P 500, which rose nearly 7%.

Despite these gains, the question still lingers: is the rally short-lived? Let’s dig deeper.

Alibaba Group Holding Limited (BABA)

The Chinese e-commerce giant Alibaba Group Holding Limited (BABA) faced tough regulatory, macroeconomic, and competitive headwinds in the past. For the fourth quarter that ended March 31, 2024, BABA’s revenue increased by a modest 7% year-over-year to $30.73 billion. However, the company’s income from operations declined 3% from the prior-year quarter to $2.05 billion.

Alibaba has been navigating a period of cautious consumer spending in China, yet there have been signs of a slight recovery in its core e-commerce business. Revenue from the Taobao and Tmall Group rose 4% year-over-year to $12.91 billion.

Also, customer management revenue (including marketing services for merchants on Taobao and Tmall) increased 5% after being flat in the prior quarter, and revenue from the Alibaba International Digital Commerce Group (AIDC) surged 45% year-over-year to $3.80 billion.

CEO Eddie Wu's commitment to “reignite” growth through further investments showed early results in the March quarter, as he noted the strategies were “working and we are returning to growth.”

However, BABA’s net income plunged by 96% from the prior year’s quarter to $127.18 million, primarily due to a decline in the value of its holdings in other publicly traded companies. The company’s non-GAAP earnings per share fell 5% from the year-ago value to $0.18. Also, its adjusted EBITDA decreased by 5% year-over-year to $3.32 billion.

Analysts expect Alibaba’s revenue for the first quarter (ending June 2024) to increase 5.5% year-over-year to $34.22 billion. However, its EPS for the ongoing quarter is expected to decline by 15.2% year-over-year to $2.04. Further, for the fiscal year 2025, BABA’s revenue is forecasted to reach $140.52 billion (up 8% year-over-year), while the consensus EPS estimate of $8.25 indicates a 4.1% decline from the prior year.

In terms of forward non-GAAP P/E, BABA is trading at 10.74x, 31.9% lower than the industry average of 15.79x. Likewise, its forward EV/EBITDA and Price/Book multiples of 6.93 and 1.47 are 28.9% and 40.5% lower than the industry averages of 9.74 and 2.48, respectively. Attractive, isn’t it? But the question remains: why is this stock so cheap in the first place?

In response to its low valuation, Alibaba's management repurchased $4.8 billion worth of shares in the fourth quarter. Although buybacks can theoretically boost the value of remaining shares by reducing the number outstanding, they fail to tackle the fundamental reasons for Alibaba's low stock price.

Alibaba's diverse investments dilute its focus on core e-commerce and cloud businesses, impacting its efficiency and valuation in the long run. For instance, although the management reported triple-digit growth in AI-related revenue in the fourth quarter, the cloud computing division only expanded by 3% year-over-year to $3.55 billion.

The stock has gained over 28% over the past month and nearly 14% year-to-date. Despite these gains, many investors are wary of the unpredictable and hostile Chinese market, and Alibaba's sprawling conglomeration of disjointed businesses further diminishes its appeal. Plus, the company's AI prospects seem weak compared to U.S. competitors.

Given BABA’s mixed financial performance and uncertain near-term outlook, waiting for a better entry point in this stock seems prudent.

JD.com, Inc. (JD)

Headquartered in Beijing, JD.com, Inc. (JD) offers a wide range of products, including computers, communication devices, consumer electronics, home appliances, and general merchandise. It also provides online marketplace services for third-party merchants, marketing services, omnichannel retail solutions, and online healthcare services.

In the latest quarter, the Chinese online retailer saw accelerated growth in its topline and market share, complemented by a robust bottom line that exhibited healthy gains. As consumers have been gravitating toward low-cost, discount-focused platforms, the company’s strategic price cuts and discount coupons have boosted sales that have been hit by cautious consumer behavior.

JD’s CEO, Sandy Xu, highlighted strong performance in categories like general merchandise, electronics, home goods (especially mobile phones), and apparel. He added that improved price competitiveness resonated with users, accelerating growth in lower-tier cities faster than in higher-tier cities.

During the first quarter that ended March 31, 2024, JD’s net revenues increased 7% year-over-year to $36 billion, beating analysts’ estimate of $35.68 billion. Its income from operations grew 19.8% from the prior year’s quarter to $1.10 billion. Furthermore, non-GAAP net income attributable to the company’s ordinary shareholders came in at $1.20 billion and $0.78 per ADS, up 17.2% and 18.7% year-over-year, respectively.

Earlier this month, analysts expressed concerns about the impact of JD.com’s low-cost strategy on margins and profitability. However, CFO Ian Shan dismissed these worries, stating that increasing users and profitability simultaneously is not contradictory.

“We believe by constantly dedicating resources to product, price, and service, this improves user experience, which drives up GMV (gross merchandising volume) and market share,” forming a virtuous cycle of business enhancement and profit growth, Shan explained.

Looking at the balance sheet, JD.com holds more cash than debt, which indicates financial stability and potential for investment in growth opportunities. As of March 31, 2024, its cash and cash equivalents stood at $11.31 billion, and its total current assets were $39.34 billion. Also, JD’s free cash flow increased by 166.3% over the past 12 months, reaching $7.01 billion.

This strong cash position allowed the company to pay an annual dividend (yielding 2.19% at the current price level) for the year ended December 31, 2023, of $0.38 per ordinary share, or $0.76 per ADS, to its shareholders on April 23, 2024. JD's four-year average dividend yield is 1.24%, with a payout ratio of 23.45%.

Despite robust short-term performance, JD.com has been cautious with international expansion compared to its peers. For instance, it opted not to acquire the warehouse and store network of British electrical retailer Currys in March. However, with expectations of slowing domestic growth, the company might need to explore new overseas revenue streams to sustain its momentum.

In terms of forward non-GAAP P/E, JD is trading at 10.66x, 32.5% lower than the industry average of 15.79x. Similarly, its forward EV/Sales multiple of 0.30 is 75% lower than the industry average of 1.22. Also, the stock’s 0.33x forward Price/Sales compares to the 0.89x industry average.

Street expects JD’s revenue and EPS for the second quarter (ending June 2024) to increase 5.6% and 7.2% year-over-year to $41.69 billion and $0.79, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters.

For the fiscal year 2024, the Chinese online retailer’s revenue and EPS are anticipated to grow 6.6% and 7.4% year-over-year to $160.66 billion and $3.31, respectively.

Shares of JD have surged more than 43% over the past three months and approximately 20% year-to-date.

Based on the company’s outlook, JD.com is focused on enhancing user experience and solidifying its market position for sustainable growth. This includes developing an ecosystem benefiting both first-party and third-party merchants. Additionally, the company’s shareholder-friendly actions, such as share repurchases and dividends, will likely bolster investor confidence and support the stock’s valuation.

Analyst Saiyi HE maintains a bullish outlook on the stock, with a price target of $51.90.

Considering these factors, along with JD.com's ongoing initiatives and potential for margin expansion, investors should closely monitor the company's performance throughout this year.

Baidu, Inc. (BIDU)

Baidu, Inc. (BIDU) operates as a Chinese-language Internet search provider with its headquarters in Beijing. Its Baidu.com platform enables users to discover online information. The company operates through two segments, Baidu Core and iQIYI.

Often called the "Google of China," Baidu is a prominent AI leader in the world’s second-largest economy. It not only develops AI tools but also supports the technology through its cloud computing infrastructure. Baidu launched the ERNIE bot, China's first public ChatGPT-like tool, and has a growing business in self-driving taxis.

For the first quarter that ended March 31, 2024, BIDU reported a marginal year-over-year increase in its revenues of $4.37 billion, slightly above Wall Street’s estimate of $4.34 billion. Its non-GAAP operating income rose 4% from the year-ago value to $924 million. Its non-GAAP net income came in at $971 million, up 22% year-over-year.

 Baidu’s focus on AI-driven advertisements and cloud services is expected to drive long-term growth despite potential short-term volatility in ad revenue due to the lower monetization of AI-generated search results. Moreover, AI significantly contributed to Baidu’s performance in the latest quarter. The core business, which includes online marketing and AI efforts, reported revenue ahead of analyst expectations, driven by a 6% annual growth in the AI Cloud segment.

“Baidu Core’s online marketing revenue remained stable, while the end-to-end optimization of our AI technology stack continued to propel the growth of our AI Cloud revenue during the quarter,” said Robin Li, Baidu’s CEO, in a statement.

The company’s non-GAAP earnings per ADS amounted to $2.76, a 23.7% increase from the prior year’s quarter. In addition, its adjusted EBITDA increased marginally year-over-year to $1.14 billion.

As of March 31, 2024, the company’s cash and cash equivalents were $4.21 billion, and its total current assets stood at $30.12 billion.

Rong Luo, Baidu’s Chief Financial Officer, stated, “In the coming quarters, we will execute on what is needed to optimize our operational efficiency in support of our AI enabled businesses and high-quality growth, and maintain a healthy non-GAAP operating margin.”

In terms of forward non-GAAP P/E, BIDU is currently trading at 9.87x, 28.7% lower than the industry average of 13.86x. Also, its forward EV/EBIT multiple of 8.61 is 42% lower than the industry average of 14.85x.

Analysts expect BIDU’s revenue for the second quarter (ending June 2024) to increase 3.1% year-over-year to $4.81 billion. However, its EPS for the current quarter is expected to decrease by 12.2% year-over-year to $2.71. Over the past month, the stock has gained more than 17% to close the last trading session at $108.87.

While the firm’s short-term gains are apparent, demonstrated by robust financial performance and stock price increases, there are looming risks, primarily due to potential fluctuations in ad revenue and the complexities of integrating generative AI capabilities.

Given this backdrop, investors should monitor BIDU's progress closely, especially its advancements in AI and cloud services, to evaluate the sustainability of its growth.

Alibaba's (BABA) Valuation: Uncovering Opportunities in a Discounted Market

Posted on by The INO.com Team

With a $187.28 billion market cap, Alibaba Group Holding Limited (BABA) is a China-based technology company that provides infrastructure and marketing reach to help merchants, brands, and other businesses engage with their users internationally. Last Friday, BABA’s stock notched the seventh consecutive session of gains, marking the longest winning streak in a year.

The e-commerce giant's shares surged more than 3% over the past month, compared to the S&P 500’s nearly 3.3% loss. Also, the stock has soared approximately 1% over the past five days, beating the S&P’s marginal loss.

From a valuation perspective, BABA is trading at a forward non-GAAP P/E multiple of 9.03, 41% lower than the industry average of 15.32. Likewise, the stock’s forward EV/EBITDA and EV/EBIT of 5.46x and 8.79x are favorably compared to the industry averages of 9.42x and 13.57x, respectively.

In addition, in terms of forward Price/Book, the stock is trading at 1.33x, 43.2% lower than the industry average of 2.34x.

Alibaba’s stock trading at a discount compared to its peers can be an intriguing opportunity for value-oriented investors. However, analyzing several quantitative and qualitative factors is crucial before making investment decisions.

Now, let’s discuss BABA’s fundamentals and growth prospects in detail:

Financial Performance Overview

For the fiscal 2024 fourth quarter that ended December 31, 2023, BABA’s revenue increased 5.1% year-over-year to $36.67 billion. Revenue from the Alibaba International Digital Commerce Group grew 43.8% year-over-year, while Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group rose 23.7% and 18.3%, respectively.

The tech giant’s adjusted EBITA came in at $7.44 billion, up 1.5% from the prior year’s quarter. However, its non-GAAP net income for the quarter declined 4.1% year-over-year to $6.75 billion. It posted non-GAAP earnings per share of $0.33, down 2% year-over-year.

Alibaba’s total assets stand at $256.80 billion, with significant holdings in cash, investments, and operational assets. The company reported cash and cash equivalents of $35.89 billion and short-term investments of $42.31 billion.

“We delivered a solid quarter as we are executing our focused strategies across the organization. Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing. We will step up investment to improve users’ core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year,” said Eddie Wu, Chief Executive Officer of Alibaba Group.

“We will also focus our resources on developing public cloud products and sustaining the strong growth momentum in international commerce business,” Wu added.

Upsize of Share Buyback Program

BABA announced that its board of directors approved an increase of $25 billion to its share repurchase program through the end of March 2027. During the quarter that ended March 31, 2024, the company repurchased a total of 524 million ordinary shares for a total of $4.80 billion.

For the fiscal year that ended March 2024, Alibaba repurchased around 1,249 million ordinary shares for a total of $12.50 billion. As of March 31, 2024, the Chinese e-commerce firm had 19,469 million ordinary shares outstanding, a net decrease of 520 million ordinary shares versus December 31, 2023, or a net reduction of 2.6% in its outstanding shares after accounting for shares issued under its ESOP.

As of March 31, 2024, the company has $31.90 billion available under its share repurchase program, effective through March 2027.

The increase in BABA’s share repurchase program demonstrates its confidence in the outlook for its business and cash flow.

“Our consistent share repurchase has also reduced outstanding share count while achieving EPS and cash flow per share accretion,” said Toby Xu, Chief Financial Officer of Alibaba Group.

Reorganization

Over the past year, Alibaba underwent significant changes, including restructuring efforts.

Daniel Zhang, the previous CEO of Alibaba Group, who became acting head of the cloud business in December 2022, unexpectedly resigned in September last year.

In March 2023, BABA announced plans to split its business into six separate units in a move to unlock shareholder value and advance competitiveness. The company’s restructuring resulted in the creation of six distinct business units, some of which will be able to go public and raise external funding.

Among those being touted for initial public offerings (IPOs) were Alibaba’s cloud unit, Cainiao logistics arm, and Freshippo grocery arm. However, Alibaba decided to cancel the highly anticipated spinoff of its cloud computing business last year.

Joe Tsai, chairman of BABA, mentioned during the last earnings call that while the company will explore separate financing options, generating synergies within the Alibaba ecosystem remains a priority to reflect the group's overall value. Tsai also emphasized that Alibaba is not rushing into these transactions and will consider market conditions before proceeding.

Strategic Initiatives

On April 17, 2024, Alibaba.com, a leading platform for global business-to-business (B2B) e-commerce, introduced its affordable, customizable Logistics Marketplace, offering U.S. small and medium-sized enterprises (SMEs) access to affordable and customizable logistics services to streamline their supply chains and gain global reach with more ease.

On January 9, Alibaba.com introduced its latest Smart Assistant features powered by AI at CES in Las Vegas, NV. The Smart Assistant is an AI-powered sourcing tool that caters to newcomers and seasoned entrepreneurs in the dynamic world of global commerce, helping them discover new opportunities, stay up-to-date on trends, seamlessly track orders, and more.

Also, in the same month, Alibaba Cloud unveiled its new generation of elastic computing instance specification family ECS g8i. ECS g8i instances will offer high-quality and efficient computing services for customers in industries like games, e-commerce, finance, medical care, and enterprise services to meet their performance needs in application scenarios, including in-depth learning, AI reasoning training, and big data.

On October 31 last year, Alibaba Cloud announced its latest large language model (LLM), Tongyi Qianwen 2.0. This is a substantial upgrade from its predecessor, launched in April. Tongyi Qianwen 2.0 demonstrates outstanding capabilities in understanding complex instructions, copywriting, memorizing, reasoning, and preventing hallucinations.

With this upgraded version of its AI model, the company looks to compete with U.S. rivals such as Amazon.com, Inc. (AMZN) and Microsoft Corporation (MSFT).

Alibaba also unveiled the GenAI Service Platform, which allows companies to build their own generative AI applications using their data.

Bottom Line

While BABA reported mixed financials in the last quarter, it announced an increase in the size of its share buyback program by $25 billion, creating a greater value for its shareholders. The boost to the buyback program demonstrates the company’s confidence in its business outlook and cash flow.

Moreover, AliExpress order volume rose by 60% year-over-year for the third quarter. This solid performance contributed to a staggering 44% year-over-year growth in Alibaba International Digital Commerce Group’s revenue, surpassing market expectations for the sixth straight quarter. AliExpress’ Choice, a premium service launched in March 2023, is the catalyst behind this strong growth.

Alibaba’s Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group further grew by around 23% and 18%, respectively.

Over the past five years, BABA’s revenue and EBITDA grew at CAGRs of 21.9% and 16%, respectively. The company’s net income and EPS rose at respective CAGRs of 7.6% and 7.8% over the same timeframe. Its total assets increased at 14.7% CAGR over the same period.

Besides, BABA’s trailing-12-month EBIT margin of 13.74% is 79.8% higher than the 7.64% industry average. Moreover, the stock’s trailing-12-month net income margin and levered FCF margin of 10.81% and 15.77% are significantly higher than the industry averages of 4.57% and 5.53%, respectively.

The Chinese internet giant is set to report its financial results for the quarter and fiscal year ended March 31, 2024, before the market opens on May 14, 2024. Analysts expect BABA’s revenue for the fourth quarter to increase 2.6% year-over-year to $30.37 billion. However, the company’s EPS for the same period is expected to decline by 6.3% year-over-year to $1.43.

For the fiscal year 2024, Street expects BABA’s revenue and EPS to grow 5.4% and 9.1% from the prior year to $130.09 billion and $8.46, respectively.

Moving forward, the China-based tech company’s primary focus is on revitalizing the growth of its core businesses, mainly e-commerce and cloud computing. The company will increase its investments to enhance users’ core experiences, boost growth in Taobao and Tmall Group, and solidify its market leadership in the upcoming year.

Alibaba has a substantial amount of net cash and investments on its balance sheet, providing investors with a safety cushion. This solid cash position can be used for strategic investments, acquisitions, and business expansion, enhancing the company's growth prospects in the long term.

In conclusion, BABA’s current discounted market position presents an attractive opportunity for value-oriented investors. Conducting a thorough analysis of the company's financial health, growth prospects, and competitive landscape can help investors make informed investment decisions and benefit from the long-term upside potential of the stock.