Earnings profit fell short of market expectations and announced a dividend of 1.66 USD/ADS: The company's FY4Q24 revenue was RMB 221.9 billion, up 7% year on year, higher than market expectations of 1%; adjusted net profit was 24.4 billion yuan, down 11% year on year, lower than market expectations of 4%; adjusted net interest rate was 11%, compared to 13% for the same period last year. FY4Q24 continued to buy back, with a net decrease of 2.6% in tradable shares. Meanwhile, the company announced an annual dividend of $1/ADS and a special dividend of $0.66/ADS, with a dividend ratio of 2%. Furthermore, the company expects to complete the conversion of its main listing in Hong Kong by the end of August 2024.
Taotian returned to a growth trajectory, and international business losses expanded: FY4Q24's revenue increased 4% year over year to 93.2 billion yuan, of which customer management revenue increased 5% year over year, recovering from the previous quarter.
Online GMV and order volume both achieved double-digit growth, mainly driven by the increase in the number of buyers and the frequency of purchases. Taobao's share of GMV has increased and an emerging model with a low monetization rate has been introduced. The overall monetization rate has declined and is expected to continue in the next few quarters. Due to increased investment to improve the user experience, Taotian's adjusted EBITA rate was 41.3%, down 2 percentage points from the previous year. Given the current competitive e-commerce environment, profit margins are expected to remain under pressure. International business maintained a strong growth trend. FY4Q24 revenue increased 45% year over year to 27.4 billion yuan, and overall orders increased 20% year over year. AliExpress Choice performed well, with Choice accounting for about 70% of AliExpress's overall orders in April. As the company continued to increase its investment in cross-border business, adjusted EBITA lost 4.1 billion yuan, a loss rate of 15%, an increase over the previous year. The sales cost of FY4Q24 was 28.8 billion yuan, an increase of 16% over the previous year, and the sales rate was 13%. It may remain high in the short term.
AI-related revenue is growing at an accelerated pace, and the cloud business is expected to recover in the second half of the fiscal year: FY4Q24 cloud revenue increased 3% year over year to 25.6 billion yuan, of which core public cloud revenue recorded a double-digit year-on-year increase, partly offset by reduced low-profit project-based contract revenue; adjusted EBITA was 1.4 billion yuan, up 45% year over year, and the EBITA rate was 5.5%. The company expects that the impact of the decline in project-based contract revenue due to business focus will continue for 1-2 quarters, and the cloud business is expected to return to double-digit growth in the second half of FY25. AI model training further opened up market space for cloud computing, and FY4Q24 AI-related revenue achieved three-digit year-on-year growth. The Alibaba Tongyi Big Model has the widest number of developers in the Chinese field, which is conducive to future long-term demand growth in Alibaba Cloud's business and has a synergistic effect.
Maintaining a “hold” rating and target price of HK$85/$87: Although the company's business is showing signs of recovery, we expect the company's short-term profit side to remain under pressure given the current competitive environment and business development. We maintain a “hold” rating and target price of HK$85/$87, corresponding to FY25E/FY26E 10.7x/9.9x P/E.
Investment risks: Competition in the industry intensifies; business growth falls short of expectations; profits are weaker than expected.