Incident: Alibaba Cloud announced the launch of the largest price reduction in history on April 26, cutting prices for all core products by 15%-50%. Among them, the price of elastic computing products was reduced by 15-20%, the price of cloud network products was reduced by 15%, the price of database products was reduced by 25-40%, the price of video cloud and CDN products was reduced by 10-20%, the price of cloud security products was reduced by 20-30%, and the highest drop of cloud storage products reached 50%.
The scale effect is superimposed on technological innovation. Alibaba Cloud achieves computing power inclusion. Alibaba Cloud's price reduction space comes from scale effects and self-developed technological innovation. On the one hand, as Alibaba Cloud's business continues to grow, Alibaba Cloud's scale effect has been shown, and marginal costs have been reduced; on the other hand, Alibaba Cloud has insisted on self-developed technological innovation, forming a closed loop of full-stack technology from hardware to software, promoting performance improvement and cost reduction. Scale effects are compounded by technological innovation. Over the past ten years, Alibaba Cloud's cost per unit of computing power has been reduced by 80% and storage costs have been reduced by 88%, promoting the continuous improvement in the cost effectiveness of cloud products and the supply of inclusive computing power.
Improving the cost-effectiveness of cloud products to help Alibaba Cloud market expand
Cloud computing services are still developing rapidly, and cost-effective clouds are expected to help further popularize the cloud. According to IDC data, the size of China's public cloud market in 2022 was 35.42 billion yuan, an increase of 29.08% over the previous year, accounting for only 8.66% of China's total IT expenditure, and the market size is expected to continue to grow. Alibaba Cloud has the highest share of the public cloud market, reaching 32.6% in 2022. At the same time, this large-scale price reduction has greatly increased the cost performance ratio of Alibaba Cloud products, which is expected to increase the public cloud user base, promote the popularization of cloud services, and accelerate the penetration of Alibaba Cloud products among government and enterprise customers, thereby promoting Alibaba Cloud market expansion.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for the 2023-2025 fiscal year to be 8703/9172/965.2 billion yuan respectively, with a corresponding growth rate of 2%/5%/5%, respectively, and a three-year compound growth rate of 4.2%. The estimated non-GAAP net profit for the 2023-2025 fiscal year will be 1763/189/207.1 billion, with a year-on-year growth rate of 26%/7%/9%, and a three-year compound growth rate of 13.8%. According to Wind's consistent expectations, referring to three comparable companies, Pinduoduo, Tencent, and Jingdong, the company was given PE 15X in 2023. Based on HK$1 to RMB 0.88206 on April 26, 2023, the reasonable market value of the company was RMB 2644.5 billion/HK$2998.1 billion, corresponding to the target price of RMB 125 yuan/HK$142, maintaining the “buy” rating.
Risk warning: The slowdown in macroeconomic growth has led to the risk of declining performance, policy regulation risks, and increased competition