Core business: Domestic business is expected to continue to be under pressure due to the weak macroeconomic consumption environment, and the impact will continue until 2022/Q1. Online retail sales of physical goods from January to October and November 2021 were 14.6%/13.2% year-on-year. It is expected that the online growth rate will continue to decline in the December quarter. Affected by weak macro consumption, the company's e-commerce business growth continues to slow. The overall GMV for the December quarter is expected to increase 4% year on year (originally 9%). The company responds to market changes and increases support for merchants. It is expected that CMR revenue will increase 0.1% year on year (originally 6.5%). Also affected are Local Life and Cainiao Network, which are expected to increase revenue by 19% (originally 57%) and 23% (originally 29%), respectively.
It is expected that the growth rate of cloud computing will slow, and the digital entertainment and innovation business will remain stable. Some Alibaba Cloud customers are affected by the macroeconomy, slowing down the cloud migration process and reducing cloud computing expenses. Cloud computing revenue is expected to increase 20% year-on-year in the December quarter (originally 32%). Furthermore, it is expected that the growth rate of cloud computing will remain at a similar level in the next few quarters. Revenue from the digital entertainment sector is expected to be the same as in the same period last year.
The innovation business expects revenue growth of 36% year over year (maintained).
Maintaining investment in new business, the profit side is expected to continue to decline compared to last year. The profitability of the company's core e-commerce business was slightly reduced by subsidized merchants. The adjusted EBITA profit of the company's core platform business is expected to increase by -2.1% year-on-year (originally 7.8%); due to maintaining investment in emerging business sectors (ranked by absolute amount of investment scale, sinking business, local life, and international business, respectively), the adjusted EBITA for core businesses is expected to decrease 25% year-on-year (originally 12% reduction); The profitability of the cloud computing business has steadily increased, and the adjusted EBITA for a single quarter is expected to be 5.8 billion ( ($0.2 billion in the same period last year), with a profit margin of 3%; digital entertainment and innovation businesses are expected to lose 1.2 billion and 2.8 billion dollars, respectively.
Actively innovate organizational structures to meet challenges, Taobao and Tmall are fully integrated, and the three major centers focus on consumer and merchant experiences. The company's organizational structure adjustment was officially implemented in 2022. Among them, the newly established digital commerce sector in China, which is the largest, quickly carried out organizational structure innovation within the sector on January 6. In the future, on the basis of adhering to the operation of the Taobao and Tmall brands, the company will establish a new industrial operation and development center, platform strategy center, and user operation and development center to focus on consumer and merchant experiences. It can be seen that the strength and efficiency of the company's organizational structure adjustments are superior to those in the past, and this adjustment is expected to further strengthen the company's core competitiveness. We believe that the company has responded positively to challenges through its organizational structure, the competitive influence of core businesses has declined marginally in '22, the company's core competitiveness and industry position as a leader in the e-commerce industry are still stable, and the long-term healthy development trend has not changed.
Profit forecasting and investment advice
The company's valuation is currently at a historically low level, so investors are advised to pay active attention. The company's revenue forecast for FY2022-2024 was 8496/9374/1049.5 billion yuan (originally 8779/9998/1130.2 billion yuan), and the adjusted EBITA was 1323/1470/171.5 billion yuan (originally 1435/1676/2009 billion yuan). The division valuation calculates the company's market value of $2997.8 billion, corresponding to a value of HK$165.2 per share, maintaining a “buy” rating.
Risk Reminder
The impact of the epidemic continues, industry competition intensifies, new business incubation falls short of expectations, and industry supervision is becoming stricter