Encouraging user growth and promising cloud outlook
Investment Thesis
Largest e-commerce platform with marketplaces as a key driver. Alibaba continues investing in community marketplaces to deepen penetration into lower-tier cities via multiple consumer touch points in its ecosystem like Taobao Deals and Taobao Grocery.
Cloud leader in China. Alibaba leads the China cloud services market with 39% of market share in 2020, which is expected to grow at c.43% CAGR during FY20-23. Alibaba Could has benefited from a larger client base and strong demand from merchants.
International e-commerce new engine driver. Alibaba sees accelerated growth to the international e-commerce market; and it is well positioned to capitalise on the Southeast Asia market by leveraging its existing supply chain and logistics networks.
Valuation:
We derive our TP of HK$211/US$216 based on SOTP methodology: (1) 20x PE on FY3/22 core business (HK$171); (2) Cloud: 5x price -to -sales on FY22F (HK$22); and (3) Digital media and entertainment: (HK$9).
Where we differ:
More optimistic on e-commerce growth. We believe Alibaba will capture a sizeable market share in the fast-growing egrocery segment, leveraging on its resources in new retail, supply chain and logistics, leading to revenue upside.
Key Risks to Our View:
(1) Policy risks from regulators; (2) intense competition from other e-commerce platforms; and (3) earnings drag from investments in new initiatives.