Weaker-than-expected 3QFY3/24 performance; international commerce outlook stays strong
- Expect customer management revenue to grow 1% y-o-y in 3QFY3/24, cut from our previous forecast of 3%
- GMV growth is faster than that of CMR, thanks to the successful implementation of low-price strategy
- Revised down FY3/24F-26F earnings by 5%/11%/12%, mainly on higher international investment assumptions
- Maintain BUY, as we expect growth momentum to pick up in FY3/25F with lowered TPs of HK$133/US$134
3QFY3/24 preview
We expect Alibaba’s revenue to grow by 5% y-o-y to Rmb260bn in 3QFY3/24, revised down from previous forecasts of c.8% growth, largely due to slower growth of 1% y-o-y (vs. 3% y-o-y in 2QFY3/24) in the CMR segment with lower commission rate set for merchant acquisition activities.
Despite the weak consumption sentiment, we expect GMV growth to outpace CMR growth in 3QFY3/24, thanks to the successful implementation of a low-price strategy. Besides, Taobao and Tmall continue to exhibit robust order volume and user growth. In addition, we expect the commission take rate and CMR to gradually pick up with less merchant acquisition activities in FY3/25F.
We expect the international commerce segment will sustain strong growth of c.48% y-o-y in 3QFY3/24, supported by increasing order volume for AliExpress’s Choice and Trendyol. Looking ahead, we expect the company will place high priority on its international business to drive revenue growth, with more investments and marketing dollars will be directed towards user acquisition for AliExpress’s Choice and Trendyol. We believe robust growth of this segment will sustain over the next few quarters.
On the other hand, we believe the cloud intelligence business still needs more time to see growth accelerate, given ongoing reduction of CDN business and weak cloud demand.
We expect adjusted 3QFY3/24 EBITA to stay relatively flat at Rmb51.8bn (vs. +16% y-o-y growth in 2QFY3/24), below the consensus of Rmb54bn, mainly due to increased investments in its international businesses and slower-than-expected CMR growth.
Earnings revision and recommendation
We revised down our FY3/24F/FY3/25F/FY26F adjusted earnings by 5%/11%/12%, respectively, mainly to reflect increasing investments in international commerce and the moderate revenue outlook for CMR. We now forecast adjusted earnings of Rmb166bn/Rmb178bn/Rmb197bn for FY3/24F/FY3/25F/FY3/26F, representing 12%/7%/11% y-o-y growth, respectively.
We derived our new TPs of HK$133/US$134 (previously: HK$138/US$139) based on SOTP methodology. (1) Core commerce: 12x P/E on FY3/24F core commerce earnings (HK$106); (2) cloud: 3x P/S on FY3/24F (HK$13); (3) local services: 3x P/S on FY3/24F (HK$10); (4) Cainiao: 1x P/S on FY3/24F (HK$3); and (5) digital media and entertainment: 1x P/S (HK$2).
