The company's recent situation
Alibaba Group Chairman Cai Chongxin mentioned “Our customers are users who shop using our app” in an interview in April '24. In an internal letter, Ma Yun stated that Ali “needs to be more active, more proactive and quick to change himself, and more vigorous reforms.” After the company's executives and founders made statements one after another, we are tracking and anticipating some recent changes in the company.
reviews
Using competitors as a reference, Alibaba's white card and the monetization rate of small to medium businesses still have great potential. Tmall focuses on solving the brand's product promotion and sales needs, and has also achieved outstanding results in its own monetization, but Taobao's monetization rate has always been at a low level among white brands and small to medium merchants. We estimate that the monetization rate of Pinduoduo's main site reached 5.0% in '23, surpassing Ali's 4.0%, far exceeding Taobao's monetization rate level. If Ali can push forward the implementation of internal reforms, theoretically, there is potential for improvement in monetization.
We expect the company to break the original traffic distribution pattern. We believe that the obstacle to increasing the monetization rate lies in the relatively mature flow distribution pattern. Since the company has made it clear that users are the most important, other factors can be prioritized in the face of users' interests. Currently, the company is trying to use AI algorithms to improve traffic distribution methods, tilt traffic towards Taobao, and promote advertising products throughout the site to open up free and paid traffic. We expect Ali to break the original traffic distribution pattern step by step through reforms, and also break the existing merchant's habit of studying various marketing areas and traffic depressions, so that the merchant side will form a state of “either pay” (pay for) and “do” (provide high-quality or cost-effective supply).
The promotion of products throughout the site is expected to increase Taobao's monetization rate. We estimate that Taobao's monetization rate is between 2-2.6%, far lower than Tmall. The product promotion threshold is low and the launch effect is definitive. We expect that more small and medium-sized merchants will increase their efforts to promote products throughout the site. Taobao is more hopeful to increase the monetization rate. In addition, some mid-tier brands on Tmall are also expected to become a breakthrough.
Users may expect WeChat Pay to be fully integrated into Taobao under the first strategy. Recently, Alibaba has continued to improve the user experience, including expanding 88VIP benefits, launching a refund-only service, and expanding the scope of door-to-door delivery services. We have also observed that some Taobao orders can already be paid through WeChat Pay. If users are put first, we think the platform may give users the freedom to choose during the payment process, which will benefit both Alibaba and Tencent.
Profit forecasting and valuation
Currently, the company's US and Hong Kong stocks are trading 8/8 times the non-GAAP price-earnings ratio for the 2024/2025 fiscal year. We maintain revenue and profit forecasts, and maintain the target prices of US stocks and Hong Kong stocks at HK$112 and HK$109, corresponding to the 2024/2025 non-general accounting price-earnings ratio of 12/11 times, with room for growth of 49% and 49%, respectively.
risks
Macroeconomic and regulatory uncertainty; e-commerce competition intensifies.