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Is it Time to Buy Alibaba?

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  • Revenue for the third quarter misses estimates.
  • Alibaba announces $25 billion share buyback.

On Wednesday Alibaba Holding Ltd. reported its results for the fiscal third quarter ending December 31.

Earnings per share (EPS) came in at RMB18.97 ($2.67), missing analyst expectations of RMB19.17. The company’s revenue reached RMB260.35 billion ($36.67 billion), just shy of the consensus forecast of RMB260.65 billion. Revenue increased 5% year over year, logging a slowdown from the previous quarters as growth in the China e-commerce business and cloud computing division remained slow.

Income from operations was RMB 22.51 billion ($3.17 billion) decreasing 36% year over year. The year-over-year decrease was primarily attributable to impairment of intangible assets of Sun Art and impairment of goodwill of Youku.

Adjusted EBITA, a non-GAAP measurement (excluding share-based compensation expense, impairment of intangible assets and goodwill and certain other items), increased 2% year-over-year to RMB52.84 billion ($7.44 billion).

Net income attributable to ordinary shareholders was RMB14.43 billion ($2.03 billion). Net income was RMB10.72 billion ($1.51 billion), a decrease of 77% or RMB35.03 billion year over year, primarily attributable to mark-to-market changes from the company’s equity investments and the decrease in income from operations due to the impairments related to its video streaming service Youku and supermarket chain Sun Art.

Excluding share based compensation expense, gains/losses of investments, impairment of intangible assets and goodwill, and certain other items, non-GAAP net income in the quarter was RMB47.95 billion ($6.75 billion), a decrease of 4% compared to RMB49.93 billion in the same quarter of 2022.

A graph of stock market

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Source: TradingView

The internet giant approved another $25 billion of share buyback, expanding its existing share repurchase program that was one of the largest in the country. Alibaba said the $25 billion increase is added to its share repurchase program through the end of March 2027, bringing the total available under the plan to $35.3 billion. That will reduce the number of shares and consequently push up the EPS.

Shares of Alibaba have declined 77% from its October 2020 high of $319.32 and were down 13% in 2023. YTD prices are down more than 8%. The Hong-Kong based company carried its largest corporate structure overhaul in 2023 and had several high-profile management changes, with company veteran Eddie Wu becoming chief executive officer (CEO) last September, when former CEO Daniel Zhang suddenly quit.

While at this juncture in time the down trend is still in progress and signs of reversal are lacking, the share price is approaching a significant band of support between $66.63 and $58.01. The all-time low of $58.01 registered in October 2022 is likely to attract buying interest again and we are of the view that share price may be approaching a turning point soon. While its never a good strategy to try to catch a falling knife, further weakness towards the $60.00 may present a good opportunity to start accumulating as the stock appears to be grossly oversold.

The once-dominant company has faced a difficult macroeconomic environment in China, where the consumer has remained weak. Its performance underscored a loss of market share, as local shoppers have been cutting spending and have moved to lower-cost platforms such as rival PDD and ByteDance Ltd. PDD, which owns Pinduoduo and overseas-focused platform Temu, overtook Alibaba last December and became the most valuable Chinese e-commerce company. However, Alibaba is keen to shore up its footprint in overseas markets and regain market share and become a major player in artificial intelligence and the cloud.


Footnotes:
  1. Investor Relations, Company Data
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Sandeep Rao

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Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

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Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

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Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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