2QFY23 Results Preview And APSARA Conference Takeaways
The company is seeing a weaker-than-expected recovery in consumer spending due to disruptions by the ongoing implementation of lockdown measures. We remain cautiously optimistic on Alibaba given disruptions from periodic lockdowns weighing on 2QFY23 performance. Alibaba still offers an attractive risk-reward opportunity given the encouraging sentiment on the Single’s Day pre-sales. Maintain BUY with target price lowered to HK$127.00 (US$120.00).
• 2QFY23 results preview. Alibaba Group’s (Alibaba) 2QFY23 total revenue is estimated to grow 5% yoy to Rmb210.7b. We forecast customer management revenue to decline by 2% yoy, driven by weaker GMV growth in Sep 22 given weakened consumer sentiment. We expect to see a decline in total GMV given its exposure to the weak demand for discretionary items. The Local Consumer Services (LCS) segment is guided to deliver an accelerated growth of 29% yoy compared to +8% yoy in the same period last year. We estimate cloud revenue to deliver decelerated growth of 10% yoy to Rmb22b (vs 2QFY22: +22% yoy). Adjusted EBITDA is expected to improve with a 3% yoy growth from the previous -27%/-16% yoy plunge in 1QFY23/2QFY22, translated to an EBITDA margin of 17%. The improved profitability is mainly attributable to reduced losses from new strategic initiatives and the continued trend of cost optimisation.
• Better 3QFY23 underpinned by 11.11 shopping festival. The company reported swift Singles’ Day pre-sales despite soft recovery and weakening consumer sentiment. 102 brands on Tabao and Tmall surpassed Rmb100m in an hour after the first round of sales. Taobao Live surged 600% yoy in the first hour while the live-streaming channel on Tmall exceeded Rmb100b in the first 20 minutes, outperforming its peers. The strong sales are continuously driven by unfulfilled demand for smartphone devices and essential goods. Amid the intense market competition, Alibaba can leverage on its strengthening customer loyalty to seize and secure market share from rivals such as short-form video platforms.
• At the AliCloud Summit and APSARA Conference (“????”), management blamed the latest growth slowdown in the cloud industry on less government spending, as well as the slower growth and policy impact on internet gaming and education industries. Alicloud expects the manufacturing industry and the increased content needs driven by Metaverse to be its next revenue growth engine. Management believes the impact of the CHIPS act for AliCloud is limited in the near term, as customers’ high-end and massive computing power needs is limited in China currently. However, with the increase in demand for advanced cloud services in China, the management expect some challenges in the future, with current products becoming outdated if the global chip industry continues to develop at the current pace in the next few years.