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Management also noted that their board of directors has approved both Freshippo (BABA’s retail grocery segment) and Cainiao (their logistics groups) to explore an IPO over the next 18 months. Management reiterated plans to fully spin off the cloud intelligence division and complete a public listing in the next 12 months. I suspect that many investors are now focused mostly on management’s efforts to split up the business units and spin off as many of them to shareholders. Such commentary might confuse American investors, given that BABA is often called “The Amazon of China.” But one must remember that the cost of living is much lower in China, making any logistical advantage less relevant as compared to the United States. On the conference call, management noted that while the Chinese economy continues to recover following the easing of pandemic restrictions, “consumer confidence and spending power still need further momentum.” Management also noted that there is fierce competition from the various consumption platforms. Together, those made up roughly 59% of the market cap.

The company spent $1.8 billion repurchasing stock, an arguably modest amount given the extent of the undervaluation and solid free cash flow generation, but still impressive considering that share repurchases are still a newer development for this company.īABA ended the quarter with $63.4 billion in net cash plus $66 billion in additional equity investments. This marks the company’s return to a double-digit adjusted EBITDA margin after it dipped to 8% last year.īABA was able to generate such strong growth in adjusted EBITA largely due to its cost reduction initiatives, as it was able to reduce losses substantially at almost every loss-generating unit, as well as boost margins by 500 bps in the core commerce operations.īABA generated $4.7 billion in free cash flow in the quarter, making up 124% of adjusted EBITA. The big story was clearly the boost in profitability, as adjusted EBITA grew 60% YOY. In its most recent quarter, BABA saw strong growth in most of its various business categories, but overall revenue growth hovered at 2% YOY as its most critical commerce operations declined 3% YOY. The stock has not gone up as expected, as Wall Street has suddenly lost interest in these events that in theory should help realize considerable shareholder value. I last covered BABA in May, where I discussed the potential upside from the proposed spinoffs. The adjustment has been even more severe at BABA as it is still trading at the same levels as it did in 2014 when it came public. The valuation reset in the tech sector has led many tech stocks to trade at pre-pandemic levels. While risks have not declined for this name, I am increasing my aggression in buying the stock and have made it a core position in my portfolio. At this point, any successful execution on spinning out the various business units, starting with its cloud division, is likely to lead to substantial upside - downside scenarios seem to focus on management being unable to accomplish those goals. This is a company which has net cash and investments equivalent to nearly 60% of the market cap, and trades at around 10x earnings even before accounting for that fact. BABA has seen its valuation reset to arguably distressed levels amidst the rising interest rate environment, and management continues to work towards spinning off various business units in order to address the conglomerate discount.

But the market seems to be ignoring the clear signals being sent from management that they are focused on extracting shareholder value. The bearish thesis against Alibaba ( NYSE: BABA) is well known at this point, centering around the regulatory risk in the event of rising US-China tensions.

#Alibaba login plus