$BABA is steadily declining and will announce their results on Aug-14th.
Morgan Stanley and Merrill released pre-earnings reports yesterday. Both firms are projecting a revenue decline and flagged that heavy investments—10 billion RMB—in BABA’s TTG group will pressure near-term results. MS anticipate these investments will double to 20 billion RMB next quarter. On the positive side, they are forecasting 20~22% growth in cloud revenue.
In my view, $BABA is primarily a cloud/AI story. While their online retail business holds value, it pales in comparison to the potential of their cloud division. However, the market continues to focus disproportionately on the TTG group.
Today, $BABA trades at a $250 billion market cap, and for that you get:
Alicloud, China’s leading hyperscaler, with a $16B run rate growing at 18–20%. This business alone could be worth $150–175B.
Alicloud’s AI capabilities and market dominance in China are underappreciated and clearly not reflected in the current valuation.
Ant Financial, conservatively worth $25B, or about $10 per ADS.
Their investments in instant delivery are significant but already gaining strong traction.
A $2 per share dividend (roughly $1.05 regular + $0.95 special), yielding ~2%.
Ongoing aggressive share buybacks.
We’ll see what the results bring. The stock has been declining, and I’ve been gradually buying back shares I had previously sold. Maybe it’s early—but what’s new? If the stock breaks below $100, it could quickly fall to $80 or even $70.
The valuation gap between $BABA and U.S. tech tells a broader story: U.S. tech looks overvalued, while much of the rest of the world, including China, remains undervalued.
This summary needs further clarification. Currently, the TTG division operates with a gross margin of nearly 40% and is projected to generate $27 billion in profits by FY2028, and all non-cloud business is expected to make $32 to $35 B net profits, (Alibaba’s fiscal year ends in March, so FY2028 refers to the 12 months ending March 2028). In contrast, the Cloud division is expected to generate $3 billion in profits by the same period.
Importantly, TTG’s profits are expected to remain flat through FY2028, whereas Cloud profits are projected to double over the next three years. This implies that while TTG will maintain its current value, the Cloud division is on a strong growth trajectory. Analysts estimate that Cloud will achieve a 10% net profit margin. Since AI is a high-margin segment and expected to drive much of the future growth, the profitability outlook for the Cloud business improves even further. While companies like Amazon ($AMZN) and Microsoft ($MSFT) do not publicly disclose net profit margins for their cloud businesses, using operating or gross margins as a proxy (40% ~50%) suggests that Alibaba’s Cloud division could potentially exceed the 10% and can achieve 15% to 20% net profit margin.
If the non-cloud businesses are valued at just 10x earnings, and Cloud is valued separately based on its growth and margin profile, Alibaba’s total valuation could reasonably reach $500 to $550 billion, that is $200 per ADS.
PS: I have converted all numbers to USD, and have assumed Chinese discount.
From research reports, $BABA has invested over 10 b RMB or $1.4 B USD in the instant delivery business, most of which is towards heavy consumer subsidies. While those investments have resulted in volume doubling but it is a loss leader. Looks like $BABA is planning to further invest We will get more details about how much this is costing and what is company’s plan going forward. This is clearly a drag on the share price. Any clarity on this front and AI sustained growth could push the stock price higher.
As I mentioned earlier, the heavy capex resulted in negative FCF, but underlying businesses are doing fine. They still carry $82 B cash, net cash (cash - debt) is $49 B, which is $35 cash on hand, or $21 net cash.
Share repurchase is steady, as the capex reduces and cash flow improves, share repurchase will pick up. Also, if the stock price declines, they will accelerate the buyback. The buybacks will act as a strong bid on the stock on any decline.
$BABA is building a new chip, a more versatile, focused on inference and not on training. In the past, $BABA used $TSMC to manufacture its chips, but this will be manufactured by a Chinese company.
When Biden Administration and most politicians call for banning, they are not slowing China’s progress rather they are accelerating, by forcing China to develop their own technology. Necessity is the mother of Invention.
Still many under appreciate China’s technology strength and how advanced they are.
The stock is on tear since earning release and the last few days made further moves…
Alibaba expects to spend more than its previously announced target of $53 billion over three years for AI infrastructure, Chief Executive Eddie Wu said at an industry conference in China Wednesday.
The fools is dead.. From my original post to now the stock is up $65 or 61% or 290% annualized gains.. all it received was 1 rec… if I post some useless post on politics… it gets rec…
Just because there is a lack of recs doesn’t mean your posts aren’t read. I have zero interest in Chinese stocks so I have no knowledge if your post on $BABA is fair. I do read your posts on other investments and find them interesting, even if I don’t always agree.
As for the comment on political posts receiving recs, I agree with you. It appears to me that if you lean a certain way political posts are allowed. That’s fine with me. Their board, their rules.
The dynamic is definitely different. I read your posts… I didn’t see this one until it popped up however. So, I missed your initial call… and your followup.
