2QFY23's revenue is slightly lower than expected and its profit exceeds expectations.
The company announced 2QFY23 results: revenue rose 3% year-on-year to 207.2 billion yuan, slightly lower than market expectations, mainly due to the core e-commerce (CMR) performance slightly weaker than market expectations; adjusted EBITA growth of 27% to 36.2 billion yuan, higher than market expectations of 11%, non-general criteria return to the mother net profit of 34.3 billion yuan, higher than market expectations of 17%, due to cost reduction and efficiency exceeding expectations.
Trend of development
The month-on-month improvement trend of core e-commerce growth continues, but the macro and epidemic situation are facing uncertainty. 2QFY23 Taobao online physical GMV declined in low digits compared with the same period last year, but the growth rate improved month-on-month. Core e-commerce revenue fell 7 per cent year-on-year to 66.5 billion yuan. The growth difference between GMV and core business income is mainly due to the increase in return rate, which has a great impact on commission revenue, but search advertising revenue in advertising is still growing positively.
We expect 3QFY23's core ecommerce GMV and CMR to remain under pressure, with year-on-year growth likely to be lower than that of 2QFY23's core ecommerce GMV and CMR.
International business and cloud computing businesses are waiting for the external environment and needs to improve. International business: 2QFY23 revenue increased by 4% year-on-year, total order volume decreased by 3% year-on-year, mainly affected by EU VAT policy, currency devaluation, and consumption back offline; cloud computing: 2QFY23 revenue increased by 4% year-on-year, mainly due to public cloud growth partially offset by hybrid cloud decline under high-quality growth, revenue from non-Internet industry customers increased by 28% year-on-year, revenue contribution reached 58% of cloud computing revenue.
We expect future year-on-year growth rate: EPS > profit > revenue. 2QFY23 adjusted EBITA supermarket expectations are mainly due to significant loss reduction in new business. The adjusted EBITA losses of Taote, Taocai and Hema narrowed by 4.9 billion yuan compared with the same period last year. The unit economic model (UE) continued to improve after the increase in unit price, the improvement of customer acquisition efficiency and the optimization of implementation costs. We expect the 3QFY23 adjustment EBITA to be basically the same as last year, and the adjustment EBITA decline brought about by the decline in core e-commerce revenue and user experience improvement is offset by cost reduction and efficiency gains in other businesses. As of November 16, 2022, the company had repurchased about $18 billion and announced an additional $15 billion repurchase quota in addition to the original $25 billion repurchase plan, expanding the repurchase quota to $40 billion. We believe that reducing costs and increasing efficiency and expanding the buyback plan will help boost market confidence, and BABA is expected to grow at a year-on-year rate in the future:
EPS > profit > income.
Profit forecast and valuation
The company's Hong Kong shares are currently trading at 10 times earnings in Hong Kong and 9 times in 2023, while US stocks are trading at 9 times non-GAAP earnings in fiscal year 2024. Given the uncertainty of the recovery in consumption, we cut revenue by 2 per cent and 3 per cent for fiscal years 2023 and 2024 and non-GAAP net profit of 2 per cent and 5 per cent for fiscal years 2023 and 2024.
We maintain our outperforming industry rating, switch valuations to FY2024 fiscal year, maintain US and Hong Kong stocks' SOTP-based target prices of US and HK $140,137, and correspond to US and Hong Kong stocks' non-general accounting quasi-P / E ratios of 18 and 15 times 2024, 66% and 75%, respectively.
Risk
COVID-19 epidemic uncertainty, macroeconomic and regulatory uncertainty, competition intensified.