Events:
The company announces FY2023Q2 financial report (corresponding to natural year 2022Q3), realizing operating income of 207.2 billion yuan (YoY+3%,QoQ+1%), operating profit of 25.1 billion yuan (YoY+68%,QoQ+1%), adjusted EBITDA433 billion yuan (YoY+24%,QoQ+5%), net profit of-22.5 billion yuan, net profit of-20.6 billion yuan and Non-GAAP net profit of 33.8 billion yuan (YoY+19%,QoQ+12%). In addition, the company's buyback program has been approved for an additional $15 billion, totaling $40 billion, and will be valid until the end of fiscal year 2025.
Our view:
Overall performance: the revenue in the quarter was lower than expected, and the year-on-year growth rate was pressured to 3% due to the local epidemic, but the overall business development was resilient and continued to focus on the three major strategies of domestic demand, globalization and cloud computing.
China commercial business: FY2023Q2 revenue increased by-1% year-on-year to 135.4 billion yuan, of which 1) Chinese retail revenue reached 131.2 billion yuan (YoY-1%,QoQ-4%). Among them, the revenue of ① customer management business reached 66.5 billion yuan (YoY-7%,QoQ-8%), mainly due to the reduction of consumer demand, repeated epidemics and continued competition, resulting in a low number of physical GMV (excluding unpaid orders) on Taobao and Tmall in this quarter compared with the same period last year. ② direct business and other businesses achieved revenue of 64.7 billion yuan (YoY+6%,QoQ+0%), the growth mainly came from the contribution of revenue growth of direct business including Box Horse and Alibaba Health Information Technology, of which the vast majority of stores (excluding less than 12 months after opening) had positive cash flow; 2) China wholesale business achieved revenue of 4.2 billion yuan (YoY+1%,QoQ-15%).
International business: FY2023Q2 revenue rose 4% year-on-year to 15.7 billion yuan, of which 1) cross-border and global retail business achieved revenue of 10.7 billion yuan (YoY+3%,QoQ+2%). The year-on-year increase was mainly due to strong order growth and improved subsidy efficiency in Trendyol e-commerce business, but partly offset by the decline in AliExpress revenue caused by the depreciation of the euro against the dollar. 2) the revenue of cross-border and global wholesale businesses reached 5 billion yuan (YoY+6%,QoQ+2%), which was mainly due to the increase in revenue from value-added services related to cross-border business.
Local life service business: FY2023Q2 revenue increased 21% year-on-year to 13.1 billion yuan, and the overall order volume in this quarter increased by 5% year-on-year, mainly due to the strong growth of Gaode orders, the increase in the average order amount of ele.me and the improvement of subsidy efficiency.
Cainiao logistics services business: FY2023Q2 revenue increased 36% year-on-year to 13.4 billion yuan, which was mainly due to the upgrading of the service model at the end of 2021, which led to an increase in local consumer logistics service revenue and an increase in international logistics compliance solution service revenue (73% of revenue in this quarter came from external customers).
Cloud computing business: FY2023Q2 cloud computing revenue grew 4% year-on-year to 20.8 billion yuan, slowing year-on-year growth, which is mainly driven by non-Internet industries (financial / public services, telecommunications, etc.). In the quarter ended September 30, 2022, revenue from non-Internet customers accounted for 58% of Aliyun's total revenue after offsetting the impact of cross-segment transactions, an increase of 28% over the same period last year. Internet customer revenue fell 18% year-on-year.
Profit forecast and investment rating: we estimate that the company's FY2023-FY2025 annual revenue is 8956x10022, respectively, with net profit of 571, 961, 1143 billion, corresponding diluted EPS of 2.6, 4.4 and 14, respectively. According to the SOTP valuation method, we give BABA a total target market capitalization of 2.6578 trillion yuan in fiscal year 2024, corresponding to the target price of HK $138, and maintain a "buy" rating.
Risk tips: repeated impact of the national epidemic; macroeconomic growth is not as expected; the Internet industry policy regulation and valuation adjustment risk; market competition intensified, industry growth is not as expected; excessive business diversification, lack of organizational coordination, and so on.