Alibaba Group Holding Limited

BABA Details

Alibaba Group Holding Limited (NYSE: BABA) is a holding company that provides technology framework and advertising reach to retailers, brands, and other businesses to leverage the power of innovative technology to engage with their users and operate more efficiently. BABA is divided into four business segments: 1) Core Commerce, 2) Cloud Computing, 3) Digital Media and Entertainment, and 4) Innovation Projects and Others. As of September 13, 2021, the company's market capitalization stood at USD 456.93 billion, with 2.72 billion American Depositary Shares (ADS) listed and outstanding (each ADS representing eight ordinary shares).

Introducing New Services: BABA announced the launch of new Dropshipping solutions on its Alibaba.com website on September 09, 2021, along with new platform capabilities plus a USD 500,000 award program to promote the current eCommerce businesses and the rise of new eCommerce startups.

Investing RMB 100 Billion for Social Causes: On September 03, 2021, BABA announced an investment of RMB 100 billion (USD 15.5 billion) across ten essential projects to enhance shared prosperity in China. The efforts will be organized around five key areas: technological innovation, economic development, high-quality job creation, care for underprivileged communities, and the foundation of a shared prosperity development fund.

Robust Q1FY22 Results: The company reported a massive surge of 33.81% YoY in revenues to RMB 205.74 billion in Q1FY22 (ended June 30, 2021) compared to RMB 153.75 billion in Q1FY21, due to robust revenue growth in China and International commerce retail business and Cainiao logistics and services. However, its net income slightly decreased to RMB 42.84 billion in Q1FY22 vs. RMB 46.44 billion in Q1FY21. As of June 30, 2021, the company's cash and cash equivalents (including short-term investments plus equity securities and other investments) amounted to RMB 483.35 billion, and the total debt was RMB 150.61 billion.

Key Risks: BABA works mainly in China, where much of the growth in the eCommerce industry has occurred. The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of tougher rules could dent its operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Further, SoftBank held about 24.8% of BABA's outstanding ordinary shares as of July 22, 2021. Because of this concentration of ownership, minority shareholders' ability to influence corporate activities may be constrained.

Valuation Methodology: Price/Cash Flow Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BABA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: BABA's share price fell 39.10% in the past twelve months and is currently leaning towards the lower band of the 52-week range of USD 152.80 to USD 319.32. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 39.55. We have valued the stock using the Price/Cash Flow multiple-based relative valuation methodology and arrived at a target price of USD 202.50. Considering the growth prospects, significant track record, strong balance sheet, new service offerings, solid margins, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 165.41, down 1.60% as of September 13, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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