On Monday, BofA Securities adjusted its outlook on Alibaba (NYSE:BABA) Group Holding Limited (NYSE:BABA) stock, reducing the price target on the company's shares to $99 from the previous $107. Despite the price target cut, the firm maintained a Buy rating. The revision follows an analysis of Alibaba's fiscal fourth-quarter performance and future prospects.
The report released by BofA Securities anticipates Alibaba's total revenues for the fourth quarter of fiscal year 2024 to reach RMB 220.7 billion, marking a 6% year-over-year increase.
This growth is slightly higher than the preceding quarter's 5% year-over-year increase, primarily attributed to the accelerated revenues from Taobao Tmall.
The company's strategies focused on price competitiveness and enhancing user experiences are expected to continue driving traffic allocation and service upgrades.
For the domestic marketplaces' customer management revenues, BofA Securities forecasts a 4% year-over-year increase to RMB 62.7 billion.
This is driven by mid-to-high single-digit percentage growth in gross merchandise value, which has seen an improvement from the previous quarter’s low single-digit percentage year-over-year increase.
The report also notes a slight decline in the monetization rate due to a shift in the gross merchandise value mix towards Taobao.
Alibaba's international digital commerce and Cainiao logistics segments are projected to maintain strong momentum, with expected year-over-year growth of 41% and 22%, respectively. These segments are benefiting from the rapid expansion of cross-border commerce.
Meanwhile, cloud revenue is forecasted to grow by 3% year-over-year to RMB 25.5 billion, as the company continues its transition to focus on public and AI cloud services.
Regarding profitability, the group's adjusted EBITA is expected to be RMB 24.1 billion, which represents a 10.9% margin and a 5% decrease year-over-year. This is attributed to weaker seasonality in the March quarter and increased investments in domestic and cross-border e-commerce, as well as in cloud segments.
In conclusion, BofA Securities has adjusted its discounted cash flow-based price objective to $99 from $102, citing the company's strong commitment to invest in long-term growth strategies for Taobao Tmall, global expansion of Alibaba's international digital commerce, and the potential of its cloud's AI capabilities.
The firm reiterates a Buy rating, highlighting Alibaba's valuation at below 9 times the fiscal year 2025 estimated adjusted P/E, an approximate 7.3% yield, and the company's positioning to capitalize on China's potential economic recovery.
InvestingPro Insights
As investors digest the latest outlook from BofA Securities on Alibaba Group Holding Limited, real-time data from InvestingPro provides further context to the company's financial health and market position. With a current market capitalization of $194.79 billion and a P/E ratio of 14.21, Alibaba's valuation reflects investor sentiment and market performance as of the last twelve months leading up to Q3 2024. Notably, the adjusted P/E ratio for the same period stands at 13.24, indicating a slightly more favorable valuation when adjustments are taken into account.
InvestingPro's analysis shows that Alibaba's revenue growth has been steady, with a 7.28% increase over the last twelve months as of Q3 2024. This growth is in line with BofA Securities' forecast for the fiscal fourth quarter, suggesting a consistent upward trajectory for the company. Additionally, Alibaba's gross profit margin is robust at 37.91%, underscoring the company's ability to maintain profitability amidst its various investments and market expansions.
InvestingPro Tips highlight that Alibaba's fair value, according to analyst targets, is currently set at $107.02, while InvestingPro's own fair value estimation stands at $122.34. This suggests that there may be an upside potential for the stock, which is further supported by the company's strong revenue and profit margins. For readers looking to dive deeper into Alibaba's financials and future prospects, InvestingPro offers additional insights. There are 12 more InvestingPro Tips available, which can be accessed with an exclusive 10% discount using the coupon code PRONEWS24 on a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.