Alibaba’s revenue growth rate remains low

Alibaba's revenue growth rate

Chinese e-commerce leader Alibaba today reported fiscal Q4 2023 (3 months ending March 2023). The company’s revenue increased by 2.0% YoY to RMB208.2 billion and adjusted EBITDA increased by 37.4% to RMB59.2 billion. Adjusted net income per share rose 35.4% YoY to RMB1.3.

Free cash flow, which amounted to ¥32.3 billion compared with a negative value a year ago, is showing strong dynamics. The strong free cash flow together with a negative net debt of ¥399 billion allows the company to continue its buyback activities. In the past quarter its volume amounted to $1.8 billion, which corresponds to a 0.8% yield. At the same time, FCF and net debt indicators allow for more active share buybacks, but so far management is taking a rather conservative approach to this issue.

The annual revenue performance remains weak due to the rather slow recovery of the core business from the weakness of last year’s coronavirus. At the same time, adjusted EBITDA and net income managed to return to the upward trajectory, mainly due to last year’s low base and management’s efforts to cut costs. It should be noted that cloud revenue, which used to be an important revenue driver, declined by 2.1% YoY in the quarter. The weak performance was due to the high base of last year, the departure of one of the major customers and delays in the implementation of one of the products. However, the BOD approved the spin-off of the cloud business into a separate company, the value of which will be paid to Alibaba shareholders in the form of a dividend.

In our view, Alibaba’s earnings are moderately negative for the stock. Revenue was slightly below consensus and its growth rate remains on a downward trajectory. However, free cash flow generation remains extremely strong, while net income and EBITDA showed positive year-on-year dynamics and were close to analysts’ expectations. Meanwhile, the progress on the demerger in the medium term could drive the stock higher.

Our current target price for Alibaba ADS (US-traded) is $123.9, which corresponds to a 42.6% upside. Alibaba (traded in Hong Kong) has a target price of HKD 121.5, corresponding to an upside of 38.5%.

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