Will the spin-off of Cainiao usher in a new round of gains for Alibaba stock?

Source: Beast Finance Author: Beast Finance

Beast Finance


(1) Alibaba’s (BABA) recently released quarterly financial report shows that the company has the ability to achieve rapid profitability.

(2) According to reports, Alibaba is planning to spin off Cainiao Group and conduct an initial public offering (IPO) in Hong Kong to raise US$1 billion.

(3) The latest quarterly financial report shows that Cainiao Group should be able to successfully complete the spin-off of Cainiao, because Alibaba’s various business segments are moving towards break-even.

(5) The smooth spin-off of Cainiao Group may trigger a rise in Alibaba's stock, because the stock's current expected price-to-earnings ratio is less than 10 times.

Alibaba posted good revenue growth numbers in its most recent quarter, with the company announcing a 14% year-over-year increase in revenue. It is worth noting that management also has the ability to improve the EBITA of each business segment, which will make Alibaba's spin-off of each business smoother.

Alibaba is currently starting the spin-off process and plans to list its logistics business Cainiao Group in Hong Kong and issue US$1 billion in shares.

In the past, Taobao and Tmall Group, as Alibaba's core businesses, have been contributing most of Alibaba's EBITA. In the latest quarter, the EBITA of this business has increased by 9% year-on-year, and the overall EBITA has increased by 24% year-on-year. This shows that , compared with Taobao and Tmall Group, Alibaba's other business segments have seen better profit margin growth.

The rapid growth of its international digital commerce business also reduces Alibaba's geopolitical risks, which should improve market sentiment towards Alibaba. Recently, Alibaba also announced an additional $2 billion investment in its Turkish subsidiary Trendyol.

And Alibaba is still generating a lot of cash through operations. In the most recent quarter, Alibaba reported an EBITA of US$6.5 billion, which is nearly US$25 billion on an annualized basis. Improved margins have also pushed Alibaba's forward P/E ratio below 10 times, but that's very low for a company that can already achieve double-digit growth. It is worth noting that recent earnings reports from some large technology companies such as Apple (AAPL) show that their forward price-to-earnings ratios are close to 30 times.

In terms of risk, headwinds from geopolitical tensions could challenge Alibaba stock, but the company is in good financial shape to weather the storm and deliver strong fundamental growth.

The spin-off process will be smooth.

After announcing the company's split into six major groups, Beast Finance believes that one of the main challenges facing Alibaba's management is that the profit margins of many businesses are still negative. For a new company, negative profit margins will make it difficult to be self-sufficient. Typically, Alibaba's Tmall and Taobao groups provide most of the EBITA for the entire group, which is used to fund new businesses such as cloud computing, Cainiao, and international digital commerce.

However, if the company were to be spun off, the loss-making business would not be able to rely on Alibaba to fund its growth, but that issue was resolved in the latest quarter. We can see this from Alibaba's financial report. Alibaba's various business segments have made good progress in improving profit margins. For example, businesses such as digital and entertainment business and Cainiao Group have experienced negative profits from the same period last year. rate turned into a positive profit rate.

Beast Finance

(Source: Alibaba Financial Report)

In the same period last year, the digital and entertainment business suffered a loss of 907 million yuan, but it has now improved to a positive EBITA of 63 million yuan. Similarly, the rookie business has also turned from a negative 185 million yuan to a positive 877 million yuan.

Although international digital commerce and local life service groups, including food delivery, are still losing money, their profit margins have improved significantly (the current EBITA loss of international digital commerce has dropped by 70% year-on-year). Very Strong

Revenue Growth It's worth noting that the margin improvement comes at a time when all of Alibaba's businesses are showing good revenue growth. For example, the revenue of local life, rookie, digital and entertainment business and international digital business has increased by 30% year-on-year.

Beast Finance

(Source: Alibaba Financial Report)

Improved profit margins and higher revenue growth indicate that Alibaba does not need to burn cash to achieve growth in its core business. Most of the six major group businesses should also be able to support themselves in an independent manner and be flexible. There is also greater sexual freedom.

Alibaba's current annual revenue growth rate has exceeded that of almost all large technology companies such as Apple, Microsoft (MSFT), Alphabet, Meta, etc. This shows that Alibaba's current fundamentals are very good and it can continue to achieve double-digit long-term revenue. growing.

Headwinds from Geopolitical Tensions

Alibaba’s stock price has been weighed down by geopolitical tensions between the United States and China. Unless those tensions are eased, Wall Street is unlikely to be bullish on the company. However, as a new round of U.S. elections approaches, there should be more factors that are unfavorable to Chinese concept stocks. But a big plus for Alibaba is that its international digital commerce is growing rapidly, which will provide it with good geographic diversification.

In the most recent quarter, Alibaba's international digital commerce revenue grew 41% year-over-year, the highest among all businesses (the revenue share of this part of the business is now close to 10%). If current growth trends continue, the revenue share of international digital commerce should exceed 25% within the next five years. This would be a huge positive for Alibaba and allow investors to hedge against some geopolitical risks.

Progress on the spinoff process should also be positive for the stock, as it suggests regulators are reducing restrictions on big tech companies. By the end of this year, we will see that all of Alibaba's independent businesses will have positive profit margins, which will also help Alibaba speed up the spin-off process.

Implications for Alibaba Stock

Alibaba stock now trades at less than 10 times forward earnings, which is a huge discount compared to other stocks like Apple, which trades at nearly 30 times forward earnings. Meanwhile, Apple also gets 20% of its revenue from China, suggesting the company isn't entirely immune to geopolitical tensions.

Alibaba's management is currently reducing cash burn in many segments and focusing on improving efficiency. If Alibaba can further improve its margins, then we could see strong upside momentum for the stock.

The market’s revenue growth expectations for Alibaba are also higher than Apple’s. Alibaba's profit margins are also likely to improve in the coming quarters, as it is focusing more on profitability in each segment. Looking at price-to-earnings multiples, Alibaba's stock price is also 65% lower than Apple's. These factors should help Alibaba achieve better long-term returns. Geopolitical tensions will continue to be a headwind for the stock, but the spin-off process, growth in its international digital commerce business, and low valuation multiples should help Alibaba's stock provide better returns than other large tech peers.


Alibaba's profit margins improved across all of its major businesses in the most recent quarter. Many segments have also reached break-even levels. This is important for the company as it attempts to spin off these businesses into separate companies, and the negative EBITA of these businesses is also likely to turn positive in the coming quarters.

At the same time, the acceleration of revenue growth has also improved the market's forecasts for Alibaba's future revenue growth, and Alibaba's valuation is currently at a historically low level, but the company has made good progress on key indicators.

Beast Finance believes that long-term investors who can patiently wait out the current geopolitical tensions should be able to obtain better returns from Alibaba stock.

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Origin blog.csdn.net/weixin_60999797/article/details/133382297