This company’s quarterly data confirms the excellence of global recession-proof stock.
The inflation data released in China a few days ago testify that the Asian giant is entering a phase of a marked slowdown in its economy, signaled by its entry into the deflation zone.
However, there is a company in China that does not seem to be affected by the slowdown in domestic demand and the cooling of international trade and continues to grind profits.
A real "war machine".
It is the renowned ALIBABA (ticker BABA US), the Chinese tech giant.
Born from the mind of Jack Ma in 1999, today it is a holding company of six large corporate groups and various other businesses, with each business operating with a high degree of independence (this is the great "restructuring" which we will discuss later). The six main corporate groups are:
- Taobao and Tmall Group, which includes Taobao, Tmall, Xianyu, 1688.com (e-commerce platforms);
- Alibaba International Digital Commerce Group, which includes Lazada, AliExpress, Trendyol, Alibaba.com;
- Local Services Group, which mainly includes the "To-Home" activities of Ele.me and "To-Destination";
- Cainiao Smart Logistics Network Limited;
- Cloud Intelligence Group, which includes Alibaba Cloud, DingTalk ;
- Digital Media and Entertainment Group, which includes Youku, Damai, and Alibaba Pictures.
The other businesses include Sun Art, Freshippo, Alibaba Health, Lingxi Games, Intime, Intelligent Information Platform, Fliggy, and other businesses.
It is also listed on the NYSE dollar as ADR and currently has a market capitalization of $242bn. The term ADR, American Depositary Receipt, refers to a negotiable certificate issued by a US custodian bank representing a specific number of shares - usually one share - of a foreign company. ADR trades on the US stock markets like any domestic stock.
This morning, Thursday 10 August, it published quarterly data.
The Chinese e-commerce giant said revenues grew 14% year-over-year in the quarter ended June 30. This is the largest annual increase in revenues achieved by ALIBABA since the quarter ended 9-30-2021, according to data from Refinitiv (US-UK global provider of financial market data and infrastructure). As the fiscal year for Alibaba ends on 31.3 of each year, this released today was the 1st quarter of fiscal 2024. Analysts now expect that if things continue like this, the fiscal balance sheet revenue figures will close on 31.3.2024, and they will be able to easily exceed 130 billion dollars in annual turnover.
The company’s shares traded in the United States rose by 4.5% in today’s pre-market trading and at the opening of the market, they even reached above 100 dollars at 4 pm CET, with an increase of +5.3% compared to the closing of the previous day, but the trend will continue, because even these prices are not expensive.
In more detail, here’s what Alibaba accomplished in the June quarter versus Refinitiv’s consensus estimates:
- Revenues: 234.16 billion Chinese yuan ($32.29 billion) vs. 224.92 billion yuan expected, up 14% year-over-year.
- Net income attributable to ordinary shareholders: 34.33 billion Chinese yuan vs. 28.66 billion yuan expected, up 51% (!) year-on-year.
Alibaba’s main businesses, Taobao and Tmall Group, reported a 12% increase in revenue over the previous year, reaching 114.95 billion yuan in the June quarter. The company noted that the online shopping app Taobao saw daily active users increase by 6.5% in June 2023 compared to the same period a year ago.
The company’s push into foreign markets has also paid off: in the June quarter, international retail trade revenues increased by +60% over the previous year, reaching 17.14 billion yuan.
International demand also helped lift revenues of Alibaba-owned Cainiao logistics business by 34% to 23.16 billion yuan over the same period.
Alibaba’s cloud business posted revenue growth of +4% to 25.12 billion yuan.
Of course, it goes without saying that the data is good also because these quarterly results compare with those of a year ago when China was still grappling with the Covid-19 pandemic and a two-month traffic block was imposed in Shanghai.
However, let us remember that China’s economy has seen a mixed performance since the country eased tight controls over the pandemic in December: Investors were expecting a strong recovery, but domestic consumer demand remained sluggish. This year, second-quarter GDP has come in slower than analysts expected. China said on Monday, July 16th that its second-quarter gross domestic product rose 6.3% from a year ago, missing expectations. Further, the unemployment rate of young people between 16 and 24 rose to 21.3% in June, a new record.
So ALIBABA grows despite the challenging domestic and international context.
Furthermore, ALIBABA is undergoing a profound restructuring.
Indeed, Alibaba, based in Hangzhou, has undergone major changes in recent months.
In March, Alibaba said it would split into those six fully autonomous corporate groups we talked about before, some of which could have raised funds from abroad and gone public.
Alibaba in particular has already declared that it intends to take its cloud computing division publicly traded.
I don’t think things will change much when the current CEO and chairman Daniel Zhang steps down in September while remaining the head of Alibaba’s cloud computing division, ahead of its IPO.
He will be replaced by an old friend of Jack Ma’s, Alibaba veteran Eddie Wu, who will succeed him as CEO, while Joe Tsai will take over as chairman, the company said in June.
“Alibaba delivered a solid quarter as we continue to implement our reorganization, which is starting to unleash new energy and new productivity across our businesses,” Zhang said in a statement Thursday (if you want the official statement quarterly results read here).
Zhang then continued as follows:
“Through this internal transformation, we intend to catalyze innovation, especially through artificial intelligence systems, foster the vitality of our organization, and allow our group companies to focus on long-term growth. We expect positive impacts on turnover in the medium term, including the strengthening of competitiveness, sustainable growth according to ESG parameters, and the creation of value for shareholders".
Also interesting is what Toby Xu, Chief Financial Officer of Alibaba Group said:
“We repurchased $3.1 billion of ADR this quarter, supported by continued strong cash flow generation. The abundant free cash flow we have and our low balance sheet debt put us in an excellent position to strengthen our competitiveness and seize new opportunities, including through acquisitions of companies we consider interesting".
If we take a look at the balance sheet indicators, Alibaba certainly appears as a holding company with a lot of liquidity (current liquidity ratio equal to 2x i.e. liquid assets are 2 times short-term debt), low debt (debt/total assets = 11%) and listed on the stock exchange with a very attractive P/E (about 11.5x on expected earnings at the end of March 2024).
Graphically, as you can see from the Bloomberg chart above, the stock until yesterday, before the publication of the quarterly data, had made a meager performance from January 1st to the beginning of August, around 7%. But for three weeks it has been traveling above the 200-day MA and perhaps - after the excellent data published today - the beginning of a new long-term uptrend is taking shape (after the "bearish mode" which afflicted it from the highs October 2020 when it traded over $300).
A title that is certainly useful for those who want to focus on solidity and long-term profitability.
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Original article published on Money.it Italy 2023-08-10 18:02:45. Original title: Questo titolo è da comprare (ed è anche a prova di recessione)
