Alibaba Group Holding Limited

Date: January 10, 2024.

Company’s Overview

Alibaba Group Holding Limited (BABA), through its subsidiaries, provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses to engage with their users and customers in the People’s Republic of China and internationally.

The company operates through seven segments: China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, and Innovation Initiatives and Others.

It operates Taobao, a digital retail platform; Tmall, a third-party online and mobile commerce platform; Alimama, a monetization platform; 1688.com and Alibaba.com, which are online wholesale marketplaces; AliExpress, a retail marketplace; Lazada, Trendyol, and Daraz that are e-commerce platforms; Freshippo, a retail platform for groceries and fresh goods; and Tmall Global, an import e-commerce platform.

The company also operates Cainiao Network logistic services platform; Ele.me, an on-demand delivery and local services platform; Koubei, a restaurant and local services guide platform; and Fliggy, an online travel platform.

In addition, it offers pay-for-performance, in-feed, and display marketing services; and Taobao Ad Network and Exchange, a real-time online bidding marketing exchange. Further, the company provides elastic computing, storage, network, security, database, big data, and IoT services; and hardware, software license, software installation, and application development and maintenance services.

Additionally, it operates Youku, an online video platform; Quark, a platform for information search, storage, and consumption; Alibaba Pictures and other content platforms that provide online videos, films, live events, news feeds, literature, music, and others; Amap, a mobile digital map, navigation, and real-time traffic information app; DingTalk, a business efficiency mobile app; and Tmall Genie smart speaker.

The vast majority of Alibaba’s revenue comes from its core commerce business, accounting approximately 81% of the company’s revenues. This includes revenue from its online marketplaces, such as Taobao and Tmall, as well as from its logistics and payment processing services. Alibaba’s cloud computing business is also growing rapidly, and it is now the second-largest cloud computing provider in the world, with 7%. Alibaba’s digital media and entertainment business includes its streaming services, such as Youku and Tudou, as well as its online ticketing platform, Damai.

Competition

Alibaba is the dominant player in the Chinese e-commerce market, with a market share of 53%. JD.com is Alibaba’s main competitor in China, with a market share of 15%. Pinduoduo is a newer entrant to the Chinese e-commerce market, but it has quickly grown to a market share of 9%. Amazon and eBay are both global e-commerce giants, but they have relatively small market shares in China.

Alibaba’s global market share in e-commerce is estimated to be around 13%. This makes Alibaba the second-largest e-commerce company in the world, after Amazon. Alibaba’s global market share has been growing in recent years, as the company has expanded its reach into new markets such as Southeast Asia and Latin America.

Related Risks

Alibaba, the Chinese e-commerce giant, faces a variety of risks that could impact its business and financial performance. These risks include:

• Regulatory risks: Alibaba operates in a highly regulated environment, and changes in regulations could have a significant impact on its business. For example, the Chinese government has been tightening regulations on the technology sector, and this could lead to increased scrutiny of Alibaba’s business practices.
• Economic risks: Alibaba is exposed to economic risks in China and other markets where it operates. A slowdown in the Chinese economy or a global recession could reduce consumer spending and hurt Alibaba’s revenue.
• Competition risks: Alibaba faces intense competition from other e-commerce companies, such as JD.com and Pinduoduo. These competitors are growing rapidly and could erode Alibaba’s market share.
• Technological risks: Alibaba relies heavily on technology to operate its business, and disruptions to its technology infrastructure could have a major impact. For example, a cyberattack or a data breach could damage Alibaba’s reputation and lead to financial losses.
• Geopolitical risks: Alibaba is exposed to geopolitical risks, such as the trade war between the United States and China. A deterioration in relations between the two countries could make it more difficult for Alibaba to do business.

In addition to these specific risks, Alibaba also faces the general risks that are associated with any large multinational corporation. These risks include:

• Currency fluctuations: Alibaba is exposed to currency fluctuations, as it operates in multiple countries with different currencies. Currency fluctuations could impact Alibaba’s profitability.
• Legal risks: Alibaba is subject to legal risks in the various jurisdictions where it operates. These risks include intellectual property litigation, product liability claims, and antitrust investigations.
• Management risks: Alibaba’s success is dependent on the effectiveness of its management team. A change in leadership or a failure to execute on its strategy could harm Alibaba’s business.

Alibaba’s management has announced a number of initiatives to address the risks that the company faces. These initiatives are aimed at mitigating regulatory risks, economic risks, competition risks, technological risks, and geopolitical risks.

To address regulatory risks:

• Continuous compliance with regulations: Alibaba is committed to complying with all applicable regulations in the markets where it operates. The company has established a dedicated team to monitor regulatory changes, implement necessary compliance measures, and engage with regulators proactively.
• Building relationships with regulators: Alibaba is actively building relationships with regulators to understand their priorities and ensure that the company’s operations align with regulatory requirements. This proactive approach aims to minimise the risk of regulatory fines or penalties.

To mitigate economic risks:

• Diversifying revenue streams: Alibaba is diversifying its revenue streams beyond just its core e-commerce business. The company is expanding its Cloud Computing and Digital Media and Entertainment segments, which are less exposed to economic downturns.
• Cost management: Alibaba is focused on managing its costs effectively to maintain profitability even during economic downturns. The company is implementing efficiency measures, streamlining operations, and negotiating better deals with suppliers to keep expenses under control.

For competition risks:

• Continuous innovation: Alibaba is committed to continuous innovation, investing heavily in research and development to enhance its platform’s features, functionality, and user experience. This dedication to innovation aims to keep Alibaba ahead of the competition and maintain its position as the leading e-commerce platform provider.
• Expanding into new markets: Alibaba is actively expanding its reach into new markets, both domestically and internationally. The company is tailoring its offerings and marketing efforts to attract businesses in these new markets, reducing reliance on mature markets.

To eliminate technological risks:

• Investing in cybersecurity: Alibaba is investing heavily in cybersecurity measures to protect its platform and customer data from cyberattacks. The company employs a team of cybersecurity experts, implements robust security protocols, and conducts regular security audits to safeguard its systems.
• Developing contingency plans: Alibaba has developed contingency plans to deal with potential technological disruptions, such as power outages or software malfunctions. These plans aim to minimize downtime, maintain service continuity, and protect customer data in the event of a technological incident.

For geopolitical risks:

• Building global partnerships: Alibaba is building strategic partnerships with companies in key markets around the world. These partnerships help Alibaba to gain access to new technologies, expand its customer base, and navigate the complexities of doing business in different countries.
• Engaging with policymakers: Alibaba is actively engaging with policymakers in key markets to advocate for policies that support open trade and investment. This engagement helps to ensure that Alibaba has a voice in the shaping of the global regulatory landscape.

Overall, Alibaba’s management is taking a proactive approach to addressing the risks that the company faces. By investing in innovation, expanding its business, diversifying its revenue streams, strengthening partnerships, and building relationships with regulators.

Company’s Profitability

Revenues from 2021 to last quarter report:

• Alibaba revenue for the quarter ending June 30, 2023 was $32.292B, a 5.22% increase year-over-year.
• Alibaba revenue for the twelve months ending June 30, 2023 was $128.094B, a 3.97% decline year-over-year.
• Alibaba annual revenue for 2023 was $126.491B, a 6% decline from 2022.
• Alibaba annual revenue for 2022 was $134.567B, a 22.91% increase from 2021.
• Alibaba annual revenue for 2021 was $109.48B, a 52.09% increase from 2020.

Meanwhile the revenues from 2012 till 2022 are:

** The 2023 and 2024 figures are the revenues that the analysts expect.

Net income from 2020 to last quarter report:

• Alibaba net income for the quarter ending June 30, 2023 was $4.735B, a 39.47% increase year-over-year.
• Alibaba net income for the twelve months ending June 30, 2023 was $11.898B, a 92.59% increase year-over-year.
• Alibaba annual net income for 2023 was $10.558B, a 8.02% increase from 2022.
• Alibaba annual net income for 2022 was $9.774B, a 57.4% decline from 2021.
• Alibaba annual net income for 2021 was $22.941B, a 8.83% increase from 2020.

And from from 2012 till 2022 is:

** The 2023 and 2024 figures are the net income that the analysts expect.

Alibaba’s net income decreased significantly in 2021 and 2022 due to a combination of factors, including:

• Regulatory Crackdown: In 2021, the Chinese government began a crackdown on the technology sector, imposing stricter regulations on areas such as antitrust, data privacy, and financial services. These regulations impacted Alibaba’s businesses in several ways, including increasing compliance costs, limiting its ability to expand into new areas, and reducing user growth.
• Economic Slowdown: The Chinese economy experienced a slowdown in 2021 and 2022, which affected consumer spending and impacted Alibaba’s core e-commerce business. As consumer confidence declined, people were less inclined to make large purchases online, leading to a decrease in revenue from Alibaba’s marketplaces.
• Increased Competition: Alibaba faces intense competition from other e-commerce companies in China, such as JD.com and Pinduoduo. These competitors have been gaining market share in recent years, putting pressure on Alibaba’s margins and profitability.
• Investments in New Initiatives: Alibaba has been investing heavily in new initiatives, such as cloud computing and logistics, in an effort to diversify its revenue streams and expand its business. However, these investments have led to increased expenses in the short term, impacting net income.
• Changes in Accounting Standards: Alibaba adopted new accounting standards in 2021 that affected the way it recognizes revenue and expenses. These changes contributed to some of the decline in net income reported in 2021 and 2022.

EPS from 2020 to last quarter report:

• Alibaba EPS for the quarter ending June 30, 2023 was $1.83, a 44.09% increase year-over-year.
• Alibaba EPS for the twelve months ending June 30, 2023 was $4.56, a 96.55% increase year-over-year.
• Alibaba 2023 annual EPS was $4, a 11.42% increase from 2022.
• Alibaba 2022 annual EPS was $3.59, a 57.01% decline from 2021.
• Alibaba 2021 annual EPS was $8.35, a 5.7% increase from 2020.

Management

Alibaba’s management has announced several major initiatives and changes in recent months. These initiatives and changes are aimed at addressing the challenges that the company faces and driving growth in the long term.

Regulatory Compliance and Engagement:

• Alibaba has established a dedicated team to monitor regulatory changes and implement necessary compliance measures across its various business units.
• The company is actively engaging with regulators to understand their priorities and ensure that Alibaba’s operations align with regulatory requirements.
• Alibaba is committed to adhering to all applicable regulations and building constructive relationships with regulators to foster a favourable regulatory environment.

Cost Management and Operational Efficiency:

• Alibaba is implementing a range of cost-optimization measures, including streamlining operations, negotiating better deals with suppliers, and optimising resource allocation.
• The company is focusing on improving its supply chain efficiency to reduce logistics costs and enhance product delivery times.
• Alibaba is also leveraging technology to automate tasks, improve decision-making, and drive operational efficiency across its businesses.

Diversification and New Initiatives:

• Alibaba is expanding its Cloud Computing and Digital Media and Entertainment segments to reduce reliance on its core e-commerce business and tap into new growth opportunities.
• The company is investing heavily in research and development to enhance its platform’s features, functionality, and user experience, staying ahead of the competition.
• Alibaba is expanding its reach into new markets, both domestically and internationally, to diversify its customer base and revenue streams.

Addressing Geopolitical Risks:

• Alibaba is building strategic partnerships with companies in key markets around the world to gain access to new technologies, expand its customer base, and navigate the complexities of doing business in different countries.
• The company is actively engaging with policymakers in key markets to advocate for policies that support open trade and investment, ensuring a favourable global regulatory landscape.
• Alibaba is diversifying its supply chain and logistics partners to reduce reliance on any single region or country, mitigating geopolitical risks to its operations.

Shares outstanding

Alibaba has an ongoing share repurchase program that was authorised by the company’s board of directors in March 2022. The program is intended to reduce the company’s outstanding shares and return capital to shareholders. As of November 16, 2023, Alibaba has repurchased about $18 billion worth of its shares under the existing $25 billion program. The program is expected to continue until March 2025.

Milestones

Assets VS Liabilities

Alibaba, the Chinese e-commerce giant, boasts a healthy financial standing with assets exceeding its liabilities. This demonstrates the company’s ability to meet its obligations and maintain its operations effectively. Alibaba’s strong financial position is further supported by its robust cash flow generation, which provides the company with the flexibility to invest in growth initiatives and return value to shareholders.

Lawsuits

Alibaba has been involved in several lawsuits in recent years. Here are some of the most notable cases:

• Antitrust lawsuits: Alibaba has been accused of engaging in anticompetitive practices, such as using its dominant position in the e-commerce market to stifle competition. In 2021, the Chinese government fined Alibaba $2.8 billion for anti competitive behaviour.
• Intellectual property lawsuits: Alibaba has also been sued for alleged patent infringement and copyright infringement. In 2022, a U.S. court ruled that Alibaba had infringed on intellectual property rights held by InterDigital, a technology company.
• Data privacy lawsuits: Alibaba has been sued for its handling of user data. In 2022, a group of users filed a lawsuit against Alibaba, alleging that the company had violated their privacy rights by collecting and using their data without their consent.

DCF Analysis

According to DCF analysis, BABA’s stock price is undervalued. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The consensus rating for Alibaba Group stock is Buy based on the current 1 hold rating, 14 buy ratings and 1 strong buy rating for BABA.

The average 12-month stock price forecast for Alibaba stock is $138.25, which predicts an increase of 76.14%. The lowest target is $100 and the highest is $220.

Affiliate

Trade with confidence on Freedom24, your trustworthy and licensed EU broker. Sign up using my referral link (https://freedom24.com/invite_from/2161547) and get a free stock worth up to $700! (Offer for engaged EU residents over 25).

Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.