Is Alibaba (BABA) A Buy Now?

Is Baba (BABA) A Buy Now?

8/11/2023

$BABA jumped ~5% on the day of its earnings report and then lost 5% the day after.

The stock is up ~9% in the last three months but far from the all-time high of $300+ per share.

It's been a roller coaster investment as the company has gone through political challenges and economic recession in China. Now, we hear the country is dealing with deflation.

Can Alibaba survive and generate significant value for its long-time holders?

Let's find out!

Interesting Stuff From BABA's Earnings Report

Alibaba released its large language model, which got millions of users.

As a part of the recent reorganization, Alibaba Cloud is moving toward an IPO, and it managed to show a significant 100%+ jump in profitability despite small 4% revenue growth.

Alibaba's Revenue

Revenue was up 14% Y/Y.
Leading indicators such as a daily active user of the company's biggest business, Taobao, is up 6% Q/Q.
The international commerce segment performed even faster, with international retail jumping 60% Y/Y.

But Alibaba Cloud was up only 4%, putting even a bigger distance between Alibaba and Amazon comparison. It doesn't seem Alibaba has managed to establish an AWS-like business yet.

Score: Fair to Good -- as the Chinese economy recovers, Alibaba will benefit from higher demand. Something to watch as word has it that China's economy is going through deflation now.

Alibaba's Profitability

Adjusted Net income jumped 48%
Adjusted EBITA grew 32% Y/Y

The net income adjustments are due to fluctuations in the value of its equity investments in Ant Group and other public companies.

Score: Good -- profitability is a focus; the latest results show it.

Alibaba's Balance Sheet

~ $81B+ cash & cash equivalent
vs. No significant debt

Score: Good

Alibaba's Free Cash Flow

~$5.4B in free cash flow

The company has spent $3.1B in share repurchases. This speaks to the free cash flow generation power of the businesses but also indicates BABA is not focused on drastic improvements of its business. Per announced plans, BABA is focused on splitting its business into six separate individual companies.

Score: Good -- Free cash flow is a priority.

Alibaba's Valuation

P/E of 25X
Forward P/E of 11X
PEG ratio of 1
P/S of 2.1X

The stock is undervalued compared to its American counterparts, and considering this highly profitable and free cash flow generating operation.

But concerns around China's overall economy and China-US. 4elationship, investors aren't willing to pour money into this stock.

Score: Good