Incident: Alibaba announced its 2024 annual report on May 14. The company's FY2024 achieved operating income of 941,168 billion yuan, up 8.34% year on year; net profit to mother of 79.741 billion yuan, up 9.97% year on year; non-GAAP net profit of 157.479 billion yuan, up 11.39% year on year. Among them, the company's FY24Q4 achieved operating income of 221,874 billion yuan, a year-on-year increase of 6.57%; adjusted EBITA of 24 billion yuan, a year-on-year decrease of 5.2%, lower than market expectations of 8%; and achieved NON-GAAP net profit of 24.418 billion yuan, a year-on-year decrease of 10.80%.
With active investment, e-commerce GMV achieved a double-digit growth rate over the same period last year, and we look forward to an increase in the monetization rate driven by the launch of new advertising products. Alibaba Taotian Group's FY24Q4 online GMV and order volume achieved double-digit year-on-year growth; revenue reached 93.2 billion yuan, up 3.7% year-on-year. We believe that after the company established a “customer first” strategy, the company is increasing strategic investment in the fields of competitively priced product supply, customer service, membership system benefits, and technology. The company introduced refund-only, use-first-pay-later services in 23Q4, while gradually expanding the 88VIP member rights system. With the company's high investment, Taotian Group achieved strong growth in the number and frequency of purchases, driving GMV to achieve double-digit year-on-year growth, indicating that the company's domestic e-commerce market share is gradually stabilizing; in addition, the number of 88VIP members in the company's core user group also achieved double-digit year-on-year growth, exceeding 35 million. In terms of monetization rate, the company's FY24Q4 customer management revenue increased 5% year-on-year to 63.6 billion yuan, mainly due to the increase in Taobao's GMV share. Looking backwards, Alibaba's full-site promotion products are being tested on small-scale customers and the algorithm model is being adjusted to increase customer ROI. We believe that the launch of new advertising tools is expected to gradually narrow the gap between the company's CMR revenue and GMV growth rate, and the steady recovery in the company's monetization rate may become a catalytic point for the company's e-commerce business valuation increase.
The company FY2024 increased investment in international digital commerce to achieve strong scale growth. Alibaba's AIDCFY24Q4 achieved revenue of 27.4 billion yuan, an increase of 45% over the previous year, mainly driven by the growth of AIDC's cross-border business (AliExpress Choice business); under high investment, the business achieved an adjusted EBITA loss of 4,085 billion yuan, and the loss increased year-on-year. We think it was mainly due to the company's aggressive investment in emerging markets such as the Middle East (the first quarter was an important sales node in the Middle East); in addition, there is a certain gap between AE Choice's profitability and the GMV share increased compared to the platform model. There is a certain drag on profits. Currently, the company is rapidly optimizing efficiency, and we recommend paying attention to the future AE Choice UE model optimization progress.
Supported by strong AI demand, the company's cloud business rebounded steadily. Alibaba's cloud business FY24Q4 achieved revenue of 25.6 billion yuan, an increase of 3% year over year. Among them, the company's public cloud revenue achieved double-digit year-on-year growth and AI-related revenue achieved three-digit year-on-year growth. The strong growth of the two was partly offset by a decline in revenue from low-profit margin projects. Through the scale advantages of its infrastructure and the cost advantages brought by advanced technology, the company reduced the prices of more than 100 public cloud products to provide customers with cost-effective services. Looking backwards, external customer revenue is expected to resume double-digit growth in the second half of the fiscal year, supported by strong AI demand.
Shareholder returns will continue to be strengthened, and a major dual listing in Hong Kong will soon be implemented. Alibaba's FY24Q4 repurchased US$4.8 billion of shares. In addition, the company approved a cash dividend of US$4 billion for FY24, and the FY2024 cumulative shareholder return reached US$16.5 billion, demonstrating the company's strong shareholders' willingness to give back and operating confidence.
Furthermore, the company's management said it has been preparing for a dual major listing in Hong Kong and is currently expected to complete the transition by the end of August 2024. We believe that after the implementation of the main dual listing in Hong Kong, the company is expected to be included in the Hong Kong Stock Connect, which will have a certain effect on the company's valuation/stock price in terms of liquidity and investor sentiment.
Investment advice: We expect FY 2025-2027 to achieve revenue of 1.02/1.11/1.19 trillion yuan; net profit to mother of 973/1078/113.5 billion yuan; EPS of 4.78/5.29/5.57 yuan, corresponding PE 16.68/ 15.07/14.30 times, respectively. The company's domestic e-commerce and cloud business have gradually stabilized, and the international e-commerce business has maintained strong growth. The increase in monetization rate brought about by the launch of new advertising products, the optimization of AChoice's UE model, and the increase in liquidity brought about by the dual main listing are expected to become the three major catalysts for improving the company's fundamental/valuation. It was covered for the first time and gave it a “buy” rating.
Risk warning: Macroeconomic recovery falls short of expectations, monetization rate growth falls short of expectations, live e-commerce shocks, and competition in the e-commerce industry intensifies.