Alibaba (BABA, BUY) Solid F4Q; Now is the Inflection Point
We are upgrading our rating from HOLD to BUY and maintain our PT of $130 as F4Q results beat estimates and we see F1Q (June quarter) as the long-awaited inflection point for the company. CMR was flat y/y in F4Q (vs. -1% in Dec. quarter), despite a low-single-digit decline in GMV due to disruptions in supply chain and logistics in March. Cloud revenue grew 12% y/y, decelerating 8pts from F3Q due to macro weakness and COVID. Global AACs reached 1.31B, adding 30M sequentially, with 1B from China. Mgmt. indicates that June quarter will be more challenging as a result of COVID resurgence and lockdowns. In April, total revenue declined low-single-digit;China retail marketplace GMV declined low-teens due to supply chain and logistics disruptions, with May improving but still not fully recovered. Given the macro uncertainty, BABA is not providing revenue guidance for FY23. Repurchased 17.8M
ADSs for $2.0B during the quarter.
Despite the more challenging June quarter, we are upgrading BABA to BUY as we believe both revenue and profitability will bottom out and hit a long-awaited inflection point in the quarter. With government's stimulus policies kicking in and an easier comp, BABA's revenue growth and margin should start to improve in the 2H. In addition, BABA is trading at 11x CY23E earnings, significantly lower than the fiveyear-average of 22x. Although the stock's growth thesis has been muted since 2021, we see positive earnings revisions and valuation improvement in the coming quarters. NYSE:BABA