Alibaba, symbolized by the acronym NYSE:BABA, has endured a melancholic phase, with its stock reflecting no signs of a robust recovery. While global indices have soared to new heights recently, the magnetic allure of the Chinese e-commerce behemoth seems to have dimmed in the eyes of investors. However, a recent upswing in Alibaba’s growth momentum, complimented by a newfound dedication from management towards enhancing capital returns, particularly through astute buyback strategies, might just be the clarion call to lure back the bulls into the arena of the internet giant’s shares. Hence, it is with a renewed optimism that I now view BABA stock as a buoyant proposition.
Growth Sets the Stage for Fiscal Prosperity in 2025
The latest financial performance of Alibaba has signaled a resurgence in growth, thereby laying a fertile groundwork for a robust fiscal year in 2025. In the closing quarter of 2024, concluding on March 31st, Alibaba reported revenues of $30.7 billion, denoting a 7% surge from the previous year. This brought the total annual revenue figure to $130.4 billion, marking an 8% uplift compared to the fiscal year 2023. Remarkably, this rebound signifies a turnaround from the previous year, where revenues had stagnated, exhibiting a mere 2% hike.
The growth narrative at Alibaba was fueled by robust performance across multiple segments. The cornerstone e-commerce platforms, Taobao and Tmall, witnessed a modest single-digit revenue growth of 4% year-over-year, attributed to an augmented customer base and a spike in purchase frequency. Noteworthy, the gross merchandise value (GMV) registered a double-digit escalation across both platforms, propelled by burgeoning order volumes, enhancements in user experience, and intensified price competitiveness.
On the international front, Alibaba International Digital Commerce (AIDC) showcased an even more noteworthy revenue leap of 45%. Management highlighted substantial growth in combined orders, revenue contributions from AliExpress’ Choice, and enhanced monetization strategies that augmented Alibaba’s global market positioning.
While the Cloud Intelligence segment witnessed a milder revenue uptick of 3% from the preceding year, Alibaba has laid down significant foundations that could propel this division’s growth trajectory in the near to medium term. Specifically, Alibaba noted substantial revenue growth in the core public cloud offerings and an exponential surge in AI-related revenues.
Albeit the disclosure of the exact AI-related revenues remains unreported by Alibaba, the undercurrent suggests a potential hegemony in the Chinese AI landscape. The estrangement between Western entities and Chinese AI technologies bestows Alibaba with a formidable advantage. Few peers possess comparable scalability in cloud computing within China, underpinning my assertion.
Profitability, Valuation, and Capital Refunds
Marked by a resurgence in growth during the fiscal year 2024, Alibaba showcased even more formidable strides in profitability, predominantly driven by its remarkable economies of scale. The company attained a commendable 12% surge in adjusted EBITA, amounting to $22.9 billion, with the adjusted EBITA margin expanding from 17% to 18%. Furthermore, Alibaba’s adjusted net income escalated by 11% to $21.8 billion, translating to an even larger 14% upsurge on a per-American Depositary Share (ADS) basis, registering at $8.62, buoyed by a reduction in ADS count consequent to Alibaba’s share buybacks.
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www.barchart.com Expectations on Wall Street foresee a moderation in Alibaba’s ADS this year, with consensus estimates projecting a figure of $8.20 for the fiscal year 2025, indicating a slight dip of 4.7%. However, despite this projection, Alibaba’s stock continues to trade at an exceptionally low forward price-to-earnings (P/E) ratio of 9x. Admittedly, the risks shadowing Alibaba are palpable and warrant careful vigilance. Yet, at this valuation multiple, it becomes increasingly arduous to neglect the investment allure of Alibaba, bolstered by its entrenched market moat.
This sentiment gains resonance especially when contemplating Alibaba’s escalating capital refunds. Management has unequivocally acknowledged the stock’s undervaluation and directed efforts toward rewarding existing shareholders with ever-increasing capital refunds, aimed at fortifying investor faith in the stock. Since early 2022, the company has bought back and retired nearly 11% of its outstanding shares, and this year’s routine and special dividends ($1.66 per ADS in total) equate to an additional yield of 2.2% at prevailing stock price levels.
With ample headroom for Alibaba to further amplify its capital returns, the cumulative yield from repurchases and dividends is poised to evolve into an increasingly tantalizing prospect assuming the stock price remains stable. Given that the stock’s overall yield is already cruising in the high single digits, I contend that this facet stands as the most robust bullish catalyst. Tangible and genuine capital refunds possess an insurmountable potency that’s difficult to brush aside.
Is BABA Stock a Promising Buy, as Per Analysts?
The echelons of Wall Street harbor a prevalent bullish sentiment towards Alibaba, mirroring the somber valuation the stock currently carries. The stock upholds a Strong Buy consensus rating, emboldened by 14 Buy recommendations against three Holds. With the average price target for BABA stock situated at $103.70, the substantial divergence from the present stock price portends a potential upside of 39.2%.
The Final Verdict
Over the years, Alibaba’s stock performance has lagged behind, even amid the broader market’s recent bullish trajectory. However, recent developments hint at a probable reversal in fortunes. With a resolute resurgence in growth during FY2024 and promising growth prospects for FY2025, Alibaba’s investment proposition appears increasingly compelling. Coalescing with a newfound emphasis on capital returns, including substantial share buybacks and burgeoning dividends, Alibaba seems poised to rekindle investor interest.
In conclusion, at the prevailing valuation, the potential gains seem to eclipse the associated risks, notwithstanding the inherent uncertainties tethered to an entity like Alibaba.