Consolidate strength and
seek new space for growth
The streamlining of new business
lines and operational optimization
of business lines will help Alibaba's
profitability recovery.
Although macro headwinds and sluggish consumer sentiment have brought resistance to Alibaba's GMV growth in China's commercial retail sector in 1H22, we expect to see a gradual recovery in 2023, which will also provide additional support for the recovery of profits. Despite short-term obstacles, Alibaba's international expansion and long-term development of its cloud business are still on track. We believe that the company's risk return is attractive and maintain a buy rating.
Alibaba Group will make decisions on financing and development considerations for different business lines, with the potential to strengthen shareholder value returns
The management mentioned that in the future, the group level will plan limited capital and limited time for different subsidiary business groups and business companies under its umbrella to promote independent financing and development of business lines. At the same time, when subsidiary business groups and business companies need financial support, they can choose to accept Alibaba Group's equity investment or interbank lending in a market-oriented manner to obtain financial support.Alibaba Group will not provide excessive financial support to its subsidiaries. When considering whether to provide financial support to its subsidiaries, strengthening shareholder value returns will be the main decision-making criterion. We believe that the continuous promotion of organizational change is expected to enhance the innovative vitality and competitiveness of business groups and companies, and the revaluation of potential business groups and companies is also expected to drive the overall valuation revaluation of Alibaba Group.
Chinese business: aimed at increasing added value and improving efficiency
For domestic businesses, Alibaba is streamlining new businesses and improving operational efficiency, which will help stabilize profitability. The adjusted EBITA losses of Taote and Hema for 1QFY23 decreased by a total of 1.5 billion yuan, while the adjusted EBITA losses of local living services decreased by 1.7 billion yuan. At the same time, Alibaba is investing in its core Chinese commercial platform business to enhance user experience and resist competition. As the impact of the epidemic weakens and the order cancellation rate returns to normal, the growth gap between Alibaba's China retail market GMV and customer management revenue CMR may gradually return to normal. We predict that the CAGR of Alibaba's Chinese e-commerce retail market GMV/customer management revenue for the fiscal year 24-25 will be 4.3/2.4%.
The long-term growth of cloud business is still on track
We are still optimistic about Alibaba Cloud's long-term revenue growth, because it has strong technical capabilities, and revenue growth from non Internet industries and potential international expansion can support long-term growth. Benefiting from the promotion of economies of scale, we expect the compound growth rate of Alibaba Cloud's revenue in fiscal years 24-25 to be 15.22%.
Industry upgrades with Alibaba Cloud
Alibaba Cloud insists on data-driven as the core to help realize business transformation and organizational upgrading, and proposes a new paradigm from digital to intelligent Diamond model: online business, collaborative organizations, and intelligent applications. Online business refers to the provision of online services for traditional businesses through internet infrastructure, actively responding to the needs of external markets and
customers. A typical case is the cooperation between Alibaba Cloud and Bank of Communications. In the process of cloud transformation of the credit card core system, Bank of Communications put forward two requirements: 1) financial business should achieve high availability, high standards and low risk; 2) Internet business needs to achieve high elasticity, high performance, and low cost. Alibaba Cloud helps customers complete the switchover of mainframe distributed cloud native deployment, and nearly 100 million customers have no awareness of the switchover process. In the future, it will empower Bank of Communications to develop in areas such as retail transformation, supply chain finance, and financial ecology. Organizational collaboration refers to the transformation of organizational division of labor and resource utilization from linear invocation to mesh collaboration as businesses become online. Efficient organizational collaboration tools enable distributed collaboration in large organizations and agile innovation in small teams. In typical cases, larger organizations include Shandong Energy, which has many business segments and branches and is widely distributed and dispersed. During the cooperation process, the group used DingTalk as the entry point for business digitization, first addressing the issue of employee identity confirmation, and secondly addressing the daily need for the entire group to hold over 400 video conferences every day. Under the
elastic architecture of cloud nail integration, application development coordination has been achieved, and a new application can be launched in an average of seven days.
Non GAAP net profit may return to growth track and show up on 2QFY23
Due to Alibaba's focus on high-quality growth in fiscal year 23, streamlining new businesses, and aiming to improve the operational efficiency of various business lines, we predict that Alibaba's adjusted EBITA will increase by 4.71% year-on-year to 150.7 billion yuan in fiscal year 24.
Data source: Company, Wind and Broad Inventment Securities forecasts
Risk:Pandemic and policy-driven uncertainty.
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