Earnings First Take: 3QFY3/24 core earnings in line, upsizing share buyback program by US$25bn
- Revenue grew 5% y-o-y to Rmb260bn, with Taobao and Tmall revenue increasing by 2%
- Non-GAAP net income decreased by 4% to Rmb48bn due to increased investments in international business
- Upsizing share repurchase program by US$25bn, positive to stock sentiment
3QFY3/24 earnings in line. Alibaba (9988 HK) announced its 3QFY3/24 results today after HK market close. Revenue increased by 5% y-o-y to Rmb260bn, in line with market expectations. By segment, Taobao and Tmall revenue increased by 2% y-o-y to Rmb129bn, within which customer management revenue was flat y-o-y. International digital commerce revenue grew by 44% y-o-y to Rmb29bn, mainly driven by 60% y-o-y order volume growth of AliExpress’s Choice. Local Services revenue increased by 13% y-o-y to Rmb15bn; Cainiao revenue grew by 24% y-o-y to Rmb28bn; Cloud intelligence revenue increased by 3% y-o-y to Rmb28bn; Digital media and entertainment revenue grew by 18% y-o-y to Rmb5bn. Adjusted EBITA increased by 2% y-o-y to Rmb53bn. Non-GAAP net income decreased by 4% y-o-y to Rmb48bn, in line with market forecast of 5% decrease. The decline was mainly due to increased investment in international commerce and increased operating loss of Sun Art.
Upsizing share repurchase programme by US$25bn. Alibaba will continue invest into its two core segments, namely Taobao Tmall and Cloud to drive long term growth. Number of active merchants of Taobao Tmall platform registered double digit growth in 3Q. The take rate was temporarily lower due to GMV mix shifting to Taobao products, as part of the low-price strategy catering consumption downgrade. But management has noticed gradual improvement in take rate. We expect Taobao Tmall revenue will gradually pick up in the next few quarters with increasing order frequency, GMV and take rate. In terms of shareholder’s return, management shared that the current market condition may not be very favourable for Freshippo and Cainiao IPOs. On the other hand, Alibaba has approved another US$25bn share repurchase program, after spending US$9.5bn in share buyback in 2023. This brings the total share repurchase budget to US$35.3 bn for the next three fiscal years, translating into a reduction of number of shares outstanding by 3%+ p.a.. The stock is trading at undemanding at 9x FY24 PE, 1.5 S.D. below the historical average. Maintain BUY with TPs of HK$133 / US$134.