Why has the target price of BABA-SWR been frequently lowered recently?

BABA-SWR target price has been continuously lowered since the beginning of 2024!

From Wall Street to domestic institutions, Bank of America has given the lowest target price for BABA-SWR, reducing it from HKD 110 to HKD 103; while Credit Suisse has given the highest target price of HKD 128.

Based on the latest closing price of HKD 70.55, this target price range implies a potential upside of 46% to 81% for BABA-SWR.

Bank of America Securities: Maintains "Buy" rating on Alibaba-SW, lowers target price to HKD 103

The bank believes that BABA-SWR is attractively valued, but has lowered its revenue forecast for fiscal years 2024 to 2026 by 2% to 4%, and adjusted net profit by 3% to 12%, to reflect the continued weak domestic consumer demand, long-term investment in growth of Taobao and Tmall, global expansion of AIDC, and the potential of cloud-based artificial intelligence. As a result, the target price has been lowered from HKD 110 to HKD 103.

The bank expects the company's total revenue for the third fiscal quarter ending in December last year to increase by 5% to CNY 261 billion compared to the same period last year, which is slower than the 9% YoY growth in the previous quarter, mainly due to recent revenue fluctuations in Taobao and Tmall. The bank expects customer management revenue (CMR) from the domestic market to increase by 1% to CNY 92 billion YoY, due to low single-digit growth in Gross Merchandise Volume (GMV) and slightly lower monetization rate. It is also expected that Alibaba International Digital Commerce Group (AIDC) and Cainiao Logistics will continue to maintain strong momentum driven by the rapid expansion of cross-border e-commerce.

The bank also expects cloud revenue for the last quarter to increase by 3% to CNY 27 billion YoY, and most of the seasonal strength and margin improvement in non-core segments will be offset by increased investment in AIDC and a one-time loss of over CNY 1 billion. Therefore, the bank expects adjusted EBITA to increase by 1% to CNY 53 billion YoY.

CICC: Maintains "Buy" rating on Alibaba-SW, lowers target price to HKD 104

According to the report, in terms of business segments, Taotian: the bank expects GMV growth rate to turn positive YoY, and CMR revenue to increase by 1% YoY, which is about 4% lower than previous expectations, mainly due to the increase in Taobao's GMV share under the price war strategy, which puts pressure on commissions. The bank expects CMR revenue growth to remain under pressure in the coming quarters, with growth rates of 4% and 3% for fiscal years 2024 and 2025, respectively.

Other businesses: International: expected revenue to increase by 39% YoY, mainly driven by the performance of services such as AliExpress Choice and platforms like Trendyol. Local services: revenue expectations lowered by about 3%, affected by the recovery of offline traffic and the high base effect of last year. Cainiao: expected international logistics services to drive revenue growth of 22% YoY. Cloud: expected revenue to increase slightly by 1% YoY, with ongoing project adjustments.

In terms of profitability, the bank expects continued investment in international business, leading to an expanded loss rate of 9%, while the profit margin for Taotian is expected to remain basically flat at 47% YoY, the loss in local services is expected to narrow, and the profit margin for cloud business is expected to increase to 5% YoY.

Citigroup: Maintains "Buy" rating on Alibaba-SW, lowers target price to HKD 122

The report states that the company's retail data trends in October and November were relatively stable, coupled with positive growth in performance during the Double 11 event. It is expected that the GMV trends of Taobao and Tmall will further improve slightly in December. However, as Taobao merchants increase their promotional efforts during the Double 11 period, the bank expects Customer Management Revenue (CMR) to narrow to CNY 92 billion, which is the same as the same period last year.

Jefferies: Maintains "Buy" rating on Alibaba-SW, lowers target price to HKD 128

The bank believes that the revenue trend of BABA-SWR is better than expected, and the strategy can be maintained. In the future, there will be opportunities for the development of artificial intelligence and overseas business, with a larger holding company discount of 30%.

The bank mentioned that as of the end of the quarter in December last year, Alibaba's total revenue increased by 5% YoY to CNY 260 billion, with Taobao and Tmall's revenue increasing by 1% YoY to CNY 128 billion. Retail Customer Management (CMR) revenue remained at CNY 91 billion, and Gross Merchandise Volume (GMV) increased by 3% YoY. International digital business revenue increased by 41% YoY, while Cainiao increased by 21%. Overall, EBITA is estimated to be approximately CNY 52 billion, with an EBITA profit margin of 20%, a decrease of 1% YoY.

JPMorgan: Lowers target price of BABA-SWR by 12.5% to HKD 105, reiterates "Overweight" rating

Alibaba's Q3 FY2024 revenue growth was weak, especially in Customer Management Revenue (CMR), which is expected to have a negative impact on the stock price in the short term.

The bank expects the CMR growth rate of Alibaba to remain sluggish in the next four quarters. Due to weak growth in Taobao and Tmall revenue, the bank predicts that Q3 FY2024 total revenue will increase by 5% YoY, which is 4% lower than market expectations. Adjusted net profit is expected to increase by 1% YoY to CNY 4.9 billion, which is 2% lower than market expectations.

The bank further stated that due to the decline in CMR and the expansion of losses in international e-commerce, earnings per share for FY2024 and FY2025 will be reduced by 3% and 7% respectively. However, this will be partially offset by the assumption of higher profit margins in cloud business.

ICBC International: Lowers target price of Alibaba to HKD 126.6, maintains "Outperform" rating

The bank expects Alibaba's total revenue for the last fiscal quarter to increase by 5.4% YoY to CNY 261 billion, which is lower than expected. It also predicts that the non-GAAP EBITDA will reach CNY 52 billion and the non-GAAP net profit margin will be 19.9%. At the same time, the bank expects the non-GAAP net profit for the last quarter to decrease by 3% YoY to CNY 48.7 billion, which is lower than expected.

The bank predicts that the group's Gross Merchandise Volume (GMV) will achieve low single-digit growth, narrowing the gap with national online retail sales. It also expects Customer Management Revenue (CMR) to increase by 0.7% YoY, slower than GMV growth.

Overall, the bank expects Taobao and Tmall's revenue to increase by 2% YoY to CNY 129.5 billion, while adjusted EBITDA remains at CNY 59.3 billion. ICBC International stated that it has lowered Alibaba's revenue forecast for 2024, 2025, and 2026, with a non-GAAP net profit forecast of 1% growth.

CMB International: Cuts Alibaba's target price by 7.6% to $137, maintains "buy" rating

Alibaba's business adjustment is still ongoing, and the bank expects international digital commerce to remain a highlight in its performance. The bank predicts that Alibaba may increase its investment in the international business in 3QFY24 to support faster expansion.

Although there is limited room for further improvement in operational efficiency after a year of strict cost control and facing a competitive environment, Alibaba is still committed to enhancing shareholder returns through dividends and stock repurchases. In the uncertain external environment, maintaining the development of the group's infrastructure and business synergy layout in the short term may be beneficial for long-term growth.

Considering the persistent macro headwinds and the possibility of lower-than-expected short-term revenue and profit growth, the bank has lowered the target price based on the sum-of-the-parts valuation method from $148.3 to $137.0 per share. However, the bank still sees the long-term growth potential of Alibaba supported by international expansion and cloud business development.