Ali ushered in a performance reversal

Source丨Dolphin Investment Research

Editor's note

On the evening of May 14, Beijing time, Alibaba Group announced its fourth quarter and full-year results for fiscal 2024.

According to the financial report, in fiscal year 2024, Alibaba Group's revenue reached 941.168 billion yuan, and adjusted EBITA profit increased by 12% year-on-year to 165.028 billion yuan. In Q4 of fiscal year 2024, Alibaba Group's revenue was 221.874 billion yuan, a year-on-year increase of 7%.

In terms of specific businesses, Alibaba Cloud's revenue and profitability performed well, with obvious growth momentum. However, the adjusted profit (Adj EBITA) of Taobao's Tmall business fell by 1.4% year-on-year, indicating that the profitability of Alibaba's core business still needs to be improved.

In addition, overseas business, cloud computing, Hong Kong listing, etc. are the focus of this financial report, Dolphin Investment Research has analyzed and interpreted each item, and has come to a conclusion: Taotian is "coming back to his senses", and Ali's change may be different this time.

In the past two days, the market has finally begun to smell Ali's hope, and the company's stock price has gone up from $65 to $85. The dolphin is divided into two pieces, so let's take a look:

Hope for the stars, look forward to the moon

Finally, we are looking forward to a dual main listing

Alibaba announced that it will complete the conversion of its primary listing in Hong Kong at the end of August 2024 and become a dual primary listing company on the New York Stock Exchange and the Stock Exchange. This is something that the market has been looking forward to since Alibaba's return to Hong Kong at the end of 2019. The main role of Hong Kong as the main listing venue is that Ali can enter the Hong Kong Stock Connect and accept funds from the south, which is more familiar with the business, which should help improve Alibaba's continued undervaluation.

Repurchase, seriously!

At the time of the last earnings report, the company expanded the ammunition depot to $35.3 billion (valid for March 2027), after Alibaba announced a buyback of $4.8 billion in the March quarter, and last year's buyback reached $12.5 billion, leaving $30 billion in buybacks. This means that there will be an average of $10 billion in buybacks per year over the past three years.

In terms of dividends, a total of $4 billion was paid in the fiscal year ending in March, including $2.4 billion in regular dividends and $1.6 billion in special dividends. According to this standard, even if there is no special dividend, the dividend for the next three years is estimated to be at least $2.5 billion per year.

In this way, in the past financial report, Ali's dividend + repurchase is $12.5 billion plus $4 billion a year, with a return rate of up to 8%; In the next three years, even if it is not as high as in the past year, 10 billion repurchase + 2.5 billion dividends are guaranteed, and the current market value of Ali is less than 210 billion US dollars, and the corresponding rate of return has reached 6%, which is significantly higher than the yield of US bonds.

Key answer 1: Alibaba Cloud's revenue and profitability are good

This time, both ends are good, and only Alibaba Cloud is the one. The private cloud pruning process of low profitability and difficult to replicate the project system has come to an end, and Alibaba Cloud has begun to improve, with a revenue of 25.6 billion yuan corresponding to a positive year-on-year growth of 3.4%, which is a small amount that exceeds market expectations. Moreover, the core public cloud is double-digit year-on-year, and AI-related triple-digit year-on-year, Alibaba Cloud is showing signs of the end of grinding.

More importantly, while achieving this growth, Alibaba Cloud's profit release is better, after removing low-quality projects, even if Alibaba Cloud's public cloud products are significantly reduced, the adjusted profit still reaches 1.4 billion yuan+, a year-on-year increase of 6%.

Key answer 2: Taotian is barely possible

Because of the current Ali, the whole is still the size of an elephant, lying on the operating table, scraping bones and healing. If there is a small improvement, this time I can actually talk about the Taotian business that has been sick:

Excluding the refund order (note, there is no "refund only" impact) Taotian GMV and order volume have achieved double-digit growth in March, Dolphin Jun estimates that the probability is that GMV is low double-digit, and the order volume is high double-digit, even if there is a problem of a low base year-on-year in the previous year, double-digit growth, for Taotian, it is finally "back to its senses".

However, due to the re-entry period of Taotian and the reduction of the monetization rate, the actual customer management revenue of Taotian only increased by 5%, and this investment not only reduced the fees for merchants, but also increased subsidies for users, and finally Taotian's adjusted profit (Adj EBITA) fell by 1.4% year-on-year.

Out of the expected difference, this group of numbers is released, which is a real improvement for Taotian, which continues to be sluggish. It's just that this benefit, after the fermentation of the market, has already been fully priced, and the market has raised expectations.

The real incremental message of this financial report is on the profit side: how much did Alibaba invest to achieve these revenue and operational goals? As for this real incremental information, the answer given by Ali's financial report is generally disappointed in Dolphin's view, and Taotian's business has not stopped declining in profit as expected by Dolphin.

Ali International, a big step in income and a big step in loss

At present, one of Ali's three major focuses (domestic retail, international retail and Alibaba Cloud), Ali International has not fallen behind on a high base this quarter, achieving a year-on-year growth of 45%, and the revenue volume has exceeded the cloud business, which is higher than the market expectation of 35%-40%, but behind the super-fast growth of this business is the model adjustment: in April, the contribution of Choice orders under the hosting mode has accounted for 70% of the overall AliExpress, and AliExpress has begun to tilt from the background and front office to the hosting model. It led to a 56% year-on-year increase in international retail revenue.

The order volume that can better reflect the organic growth of the business increased by 20% year-on-year, and the custody orders accounted for 70%.

Moreover, due to the increase in investment, the loss is also increasing, and the adjusted loss reached 4.1 billion yuan, slightly exceeding market expectations. After winning Tang Wei and Saudi stars, and also naming the Olympic Games and the European Cup, and even more well-known global spokespersons will vote later, AliExpress may lose even more.

However, under the current circumstances, as one of the few businesses in Ali's layout that still has track dividends, Dolphin Jun does not make a magnifying glass harsh criticism of this kind of pre-investment, and pays more attention to whether Ali International can have a new life within one or two years after these investments are sprinkled.

Rookie:

The infrastructure business followed Ali International's high growth, thanks to the loss

Seeing that the profit is about to continue to turn positive, in the first quarter, with the increase in investment in international business, the revenue accelerated to 30%, and the loss was magnified at the same time - from the adjusted profit of 1 billion yuan in the previous quarter to a loss of more than 1.3 billion yuan, which was significantly worse than the 330 million yuan profit expected by the market. Behind the current rookie losses is the investment in international business, and it is also not harsh.

Local life: increase income and reduce losses

Local Living achieved a 19% year-on-year increase in revenue growth this quarter, and the growth rate has accelerated. At the same time, as the second largest loss king in addition to international business, unlike international business, this business loss reduction trend is still continuing. The loss rate of 22% is an improvement from 33% last year, but the loss rate has actually increased compared with the previous three quarters, and the loss rate of this business has also exceeded market expectations.

other

Pan entertainment and a basket of other businesses are completely lackluster in terms of total volume, especially pan-entertainment, with negative year-on-year growth in revenue and increasing losses. In addition, Ant's profit in the fourth quarter of last year should not be very good from the perspective of Ali's profit sharing data, with a year-on-year decline of 20%+.

Gross margin exceeded expectations and operating margin was lower than expected

Behind this high and low is a very clear trend, after Taobao returned to the Internet, the speed of asset lightening exceeded expectations, but the lighter did not change the market competition, and a large amount of investment in marketing expenses began to come, and the final operating profit was still lower than market expectations.

Judgment!

Corresponding to the investment in the core business, the overall personnel of Ali Group is still accelerating the state of layoffs, as the first quarter of the new year, Ali slashed nearly 15,000 people! The last peak of layoffs was 9,500 in the March 2022 quarter, and the intensity and speed of layoffs have accelerated almost visibly. But even so, Alibaba's headcount is still high, reaching 205,000.

From looking at Ali to the present, an obvious feeling: Ali's input and output are basically a five-year cycle, and the last five-year cycle launched in 2015-2016 is mainly based on asset weighting, and from 2024 onwards, the next cycle should be to throw off the burden and make assets light, and at present, it is still in the asset light + investment period, so the statement is still very uncomfortable on the profit side.

Dolphin Investment Research Perspectives

Originally, Ali's restart of investment frightened investors, after all, judging from the situation in the past few years, when Ali talked about the investment period, it was basically booming and fruitless. And now the investment has started again, but this round of investment has only been going on for a few quarters, and one obvious difference is that Ali is changing, and this time it may be different.

Also because of the signs of "coming back to life" in Taotian, Ali has rebounded from $65 in the absolute undervalued area to $85 some time ago, which means that some signs of recovery reflected in the core - Taotian's business have been priced into some by funds.

What this financial report really cares about is how much cost Ali has invested to achieve this result, and is it the result of ultra-high efficiency? This is the real marginal incremental information, but unfortunately, this time in terms of profits, Ali did not give a good answer.

However, this problem, to a certain extent, is also the hope that the market, including Dolphin, has reported some "hate iron does not become steel". From a rational point of view, Taotian is still repairing the ground floor of the building, and the international business has entered the investment and investment mode with rookies, so it is true that there should be no high hopes.

Next, both the international business and the domestic retail business will increase investment, in the early stage of this round of investment, and Ali has too many places to repair, I am afraid it will still be very slow to recover. To sum up, Ali as a whole is still a three-line story of weak fundamentals + repurchase + dual primary listing. In this case, the author's logic for the investment value of Ali at the current stage has not changed:

a) Alibaba still has close to $50 billion in net cash;

b) Under US$85 (US$210 billion), the guaranteed annual dividend repurchase volume of US$12 billion+ corresponds to a dividend repo yield of 6%, which properly exceeds the yield of U.S. Treasury bonds.

Again, even if Ali's performance is still bottoming out in 2024, with the support of buybacks, the bottom of its valuation is actually very clear - every time Ali falls between 65-70 and the repo yield has exceeded 7%, the margin of safety has become extremely clear.

Of course, some people may worry that after increasing investment, Ali's operating cash flow will weaken (this quarter is 23.3 billion yuan in the off-season, a year-on-year decrease of 26%, if the next fiscal year is this decline, Ali's annual cash inflow has been left 140 billion yuan), but even if the cash flow is weak, the annual operating cash inflow of 140 billion yuan is still very exaggerated, correspondingly, a dividend repurchase of 12.5 billion US dollars a year, the dividend repurchase ratio is 65% (of course, most of the operating cash flow is generated domestically, In fact, it is difficult to transfer them out to do dividend repurchases).

In a word, $50 billion in net cash + $20 billion in annual operating cash inflow, $12.5 billion in dividends a year to repurchase, corresponding to a 6% shareholder return yield, and fundamentals, after scraping carrion step by step, there are also signs of coming alive, Ali's investment logic is quietly reversing, for this year's Ali, Dolphin Jun focuses on the reversal of investment value.

(The article only represents the author's personal views and does not represent the position of this journal.) ）