Analyst Note| Chelsey Tam |
We are very pleased with the cost-cutting efforts by wide-moat Alibaba, leading to 29% year-on-year higher adjusted EBITA in the quarter. We have revised our fiscal 2023 adjusted EBITA margin up from 12.7% to 16.2% and we expect adjusted EBITA margin to reach 16.7% at the end of this decade versus 12.0% previously to account for the strategy of prioritizing profitability over top-line growth. Alibaba’s near-term revenue outlook is weaker than our expectations, leading to our 7% cut in fiscal 2023 revenue. We lowered our 10-year revenue growth from 9.7% to 8.7% to factor in stronger competition in the China consumption sector, and expect to see slower-than-previously-expected China retail gross merchandise volume growth and monetization rate rises. Our fair value estimate remains USD 179 or HKD 173. Given the catalysts of easing coronavirus restrictions in China and more positive government rhetoric regarding the tech sector, we think it is time to add Alibaba to investors’ shopping carts.