On Thursday, BofA Securities adjusted its outlook for Alibaba (NYSE:BABA) Group Holding Limited (NYSE:BABA), increasing the stock's price target to $103 from $99, while reaffirming its Buy rating.
The adjustment comes after Alibaba reported its fourth-quarter fiscal year 2024 earnings, which showed results largely in line with estimates and consensus, except for GAAP operating and net profit. These were impacted by mark-to-market investment losses.
Alibaba's consolidated revenues grew by 7% year-over-year, spurred by a 4% increase in Taobao Tmall Group's (TTG) performance. Customer management revenue (CMR) saw a 5% rise year-over-year, trailing the double-digit growth of gross merchandise value (GMV) and orders.
The discrepancy was attributed to a shift in mix towards Taobao from Tmall. The company has outlined its strategic priorities for fiscal year 2025, focusing on sustaining TTG's momentum to match industry growth and reaccelerating Cloud revenue growth to double digits in the second half of the year.
Additionally, Alibaba plans to continue supporting the rapid growth of AIDC and its corresponding infrastructure investments through Cainiao. The company is also aiming to optimize efficiency in non-core segments and enhance shareholder returns, evidenced by a 5.1% net reduction in shares, a total of $12.5 billion in share repurchases, and $4.0 billion in dividends for fiscal year 2024.
In a significant strategic move, Alibaba has announced its intention to complete a primary listing in Hong Kong by August 2024. This step is anticipated to pave the way for potential inclusion in the Hong Kong-Shanghai Stock Connect starting in September.
In light of these developments, BofA has revised its revenue forecasts for fiscal years 2025-2026 upwards by 0-2% and raised the net profit estimate for fiscal year 2026 by 3%. However, the net profit forecast for fiscal year 2025 has been reduced by 4% to account for increased near-term investments in TTG and AIDC.
The revised price objective of $103 reflects the firm's confidence in Alibaba's attractive valuation, which stands at 9x/8x FY25/26E adjusted earnings per American depositary share (EPADS). Additionally, the firm highlights a 7-8% yield based on the current price, taking into account buybacks and dividends, and the potential for an uptick in consumer sentiment.
InvestingPro Insights
As BofA Securities adjusts its outlook on Alibaba Group Holding Limited, investors can further refine their perspective with insights from InvestingPro. Alibaba's adjusted market capitalization stands at a robust $197.1 billion, reflecting its significant presence in the market. The company's P/E ratio for the last twelve months as of Q4 2024 is 14.58, indicating a potentially attractive valuation when compared to industry peers. Additionally, with a PEG ratio of 1.29 for the same period, the stock may be appealing for growth-oriented investors considering both earnings and growth rates.
Revenue growth figures also paint a positive picture, with an 8.34% increase in the last twelve months as of Q4 2024, showing a steady climb in Alibaba's financial performance. This aligns with BofA's optimistic revenue forecasts. The company's strong gross profit margin of 37.7% further underscores its ability to retain earnings after the cost of goods sold, which is crucial for long-term sustainability.
For those seeking additional insights, InvestingPro offers more tips to help investors make informed decisions. Currently, there are over 10 additional InvestingPro Tips available, including advanced financial metrics and expert analyses. To access these tips and enhance your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.