Alibaba: Stock of the Week

We are maintaining our US$177 fair value estimate for the stock, as well as our wide economic moat rating.

Ruth Saldanha 26 June, 2023 | 2:06AM
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Ruth Saldanha: China e-commerce giant Alibaba Group (BABA) was in the news last week because of reports that management may allocate more resources to its smaller merchants than its bigger brands. We think that this move might put short-term pressure on the firm, but should boost its long-term competitiveness.

Morningstar Analyst Chelsy Tam is maintaining both her US$177 estimate of the stock’s fair value, as well as her wide economic moat rating for Alibaba.

The company’s leadership plan sees the segregation of the chairman and CEO roles, alongside the appointment of Taobao and Tmall Group chairman Eddie Wu to succeed Daniel Zhang as CEO. Tam thinks believe these moves should enhance the firm’s corporate governance. Zhang will remain CEO and chairman of Alibaba’s Cloud Intelligence Group and will be able to focus on its operations and plans.

At this stage, it is unclear whether Zhang will leave the Alibaba Partnership to further increase the Cloud Intelligence Group’s independence. What is certain, though, is that at current price levels, Alibaba’s stock is undervalued.

For Morningstar, I’m Ruth Saldanha

 

bulls Bulls Say

  • Gross merchandise volume per annual active user was CNY 8,833 for the year ended March 2022 for Alibaba, higher than CNY 3,285 in 2021 for Pinduoduo and CNY 5,905 in 2021 for JD.com.
  • Core annual active users on Alibaba's China retail marketplaces had a retention rate of over 90% for the year ended September 2021.
  • Alibaba’s China commerce adjusted EBITA margin was 32.5%, higher than JD Retail’s 3.1% non-GAAP EBIT margin and PDD’s 12.4% non-GAAP EBIT margin for the 12 months ended December 2021.

bears Bears Say

  • Expansion of other e-commerce players could slow Alibaba's growth. Pinduoduo's active buyers have started to exceed Alibaba's since December 2020.
  • Expansion into non-physical-goods-marketplace businesses and other regions lead to lower margins and the timing of profitability of these businesses is unknown.
  • Any internet companies with traffic like Douyin and Tencent can enter the e-commerce space due to its low barriers of entry. Douyin has gained market share in the apparel and beauty space against Alibaba

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alibaba Group Holding Ltd ADR74.56 USD0.01Rating

About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

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