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Company Overview: Alibaba Group Holding Limited (NYSE: BABA) is a holding company that provides a technical framework and advertising reach to merchants, brands, and other organisations, enabling them to leverage the power of innovative technology to engage with customers and operate more efficiently. Its operating segments are 1) Core Commerce, 2) Cloud Computing, 3) Digital Media and Entertainment, and 4) Innovation Projects and Others. As of February 16, 2022, it has 2.72 billion American Depositary Shares (ADS) listed and outstanding, with each ADS representing eight ordinary shares.
BABA Details
Takeaways from Q2FY22 (ended September 30, 2021)
Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group
Recent Developments
Segment Wise Results Q2FY22
Balance Sheet & Liquidity Position
Key Metrics: In Q2FY22, BABA's gross and net margins were 35.3% and -1.1%, lower than the industry median of 48.4% and -0.3%, respectively. ROE stood at 0.5% in Q2FY22, 110 bps more than the Q4FY21 return. Debt/Equity was 0.16x as of September 30, 2021, marginally higher than 0.14x on September 30, 2020.
Profitability and Leverage Profile; Analysis by Kalkine Group
Top 10 Shareholders: The top 10 shareholders (in terms of ownership of ordinary shares listed on the HKEX) together form around 31.10% of the total shareholding, while the top 4 constitute the maximum holding. The SoftBank Group Corp and Tsai (Chung Joseph) hold the maximum stake in the company at 24.79% and 1.41%, respectively, as also highlighted in the chart below:
Top 10 Shareholders; Analysis by Kalkine Group
Risk Analysis
Outlook
Valuation Methodology: Price/Cash Flow Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Over the last nine months, BABA's share price has corrected 40.92%. The stock is currently leaning towards the lower end of its 52-week range of USD 108.70 to USD 274.29. We have valued the stock using the Price/Cash Flow multiple-based illustrative relative valuation method and arrived at a target price with an upside of low-twenties (in percentage terms). We believe that the company can trade at a slight discount compared to its peer's average, considering its ownership concentration, political and regulatory risks, dependence on Alipay, and stiff competition. We have taken peers like eBay inc. (NASDAQ: EBAY) and Vipshop Holdings Limited (NYSE: VIPS). Considering the strong topline performance, growth in annual active users, associated risks and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 125.56, down 0.54% as of February 16, 2022.
BABA Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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