Key points of investment
Revenue growth slightly exceeded expectations, and overall profit conditions declined: Alibaba's FY2024Q4 achieved revenue of 221.87 billion yuan, an increase of 7% over the previous year, higher than Bloomberg's agreed forecast of 219.79 billion yuan. The company's non-GAAP net profit was 24.42 billion, down 11% year over year, slightly lower than Bloomberg's agreed estimate of 25.25 billion yuan.
Implementing the user-first strategy, Taotian GMV is growing steadily: Taobao continues to implement the user-first strategy and release a number of AI management tools to further enhance the user experience, thereby increasing consumer retention rate and purchase frequency. FY2024Q4, the company's online GMV and order volume achieved a year-on-year double-digit increase, driven by a strong increase in the number of purchasers and frequency of purchases; the number of 88VIP members increased by double digits over the same period last year, exceeding 35 million, driving a 5% year-on-year increase in customer management revenue.
Strategic investment increased, and revenue from many businesses increased: International business, local lifestyle, Cainiao, and smart cloud businesses increased dramatically this quarter, and the revenue of Dawen Entertainment Group and other divisions remained stable. 1) International digital commerce business: achieved revenue of 27.448 billion yuan, up 45% year on year, mainly due to increased investment in Choice and Trendyol's cross-border business; 2) Alibaba Cloud smart business: revenue of 25.595 billion yuan, up 3.4% year on year, mainly due to double digit growth in public cloud and external business; 3) Local Life Group: revenue of 14.628 billion yuan, up 19% year on year, mainly driven by hungry and Gaode business.
We expect that the company's expenses will continue in the short term, and that short-term profit margins will decline. In the long run, the quality of the company's profits will increase, and the reversal of new business losses and profit release will reap results.
The company has sufficient operating confidence and insists on long-term returns to shareholders: FY2023, the company's cumulative shareholder return expenses exceed US$13 billion, while FY2024 exceeds US$16.5 billion, including stock repurchases of US$12.5 billion and dividends of US$4 billion. FY24Q4, the company bought back $4.8 billion in shares. Currently, the company's account still has about $29 billion worth of funds available for share buybacks. The annual increase in shareholder returns shows the company's determination to use it as a long-term strategy and reflects the company's good operating confidence.
Profit forecast and investment rating: Based on the company's increased investment, we adjusted the company's EPS profit forecast for the 2025/2026 fiscal year from 8.03/8.85 yuan to 7.88/8.67 yuan. We expect the EPS for the 2027 fiscal year to be 9.28 yuan, and the corresponding PE (non-GAAP) for the 2025-2027 fiscal year will be 10.1/9.1/8.5 (based on the exchange rate of HKD/RMB = 0.93 on the day of 2024/5/17). The company pays great attention to improving the efficiency of various business sectors. Although large-scale investment affects short-term performance, it helps to build long-term barriers. Taking into account the company's business growth, competitive advantages and barriers, we believe that the company's current valuation level has strong investment value and maintains the company's “buy” rating.
Risk warning: Increased competition in the e-commerce industry, user retention rates falling short of expectations, market regulatory risks, risk of core management changes.