馃 ALIBABA: ANALYSIS 馃
Alibaba Group Holding Limited, through its subsidiaries, provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses to engage with their users and customers in the People's Republic of China and internationally. The company operates through seven segments: China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, and Innovation Initiatives and Others.
Based on a sample of the last year [4Q/23 TTM], its average margins have been:
- Gross margin: ≈ 37.5%
- Operating margin: ≈ 13.6%
- EBITDA margin: ≈ 19.4%
- Net margin: ≈ 11.6%
Pros:
- BABA and Amazon have a large market share in e-commerce, where BABA has a monopoly in China and their margins are slightly better than Amazon in some cases, but BABA does not have competitive advantages like Amazon
- Zero net debt (good purchasing power)
- Increases in your Free Cash Flow and possibility of increasing your presence in LatAm (could steal some market share from Mercado Libre)
Cons:
- The lack of freedom and any restrictions from the Chinese government pushes multiples down in anticipation of some type of nationalization
- Lack of confidence in their reports because they are not fully reviewed by US agencies (could change if the government accepts audits)
- Deterioration of margins (reflection of the Chinese slowdown), increases in OPEX and decreases in growth CAPEX
Based on the last report, their normalized annual EPS was ≈ $5.61 USD and its last average ROIC [TTM] was ≈ 7.49%. If an average Forward PER 15 is set as a benchmark with an EPS intensity of ± 39.08%, the potential forward spread target for the next 12 months could be:
- Optimistic: ≈ $117.04 USD
- Neutral: ≈ $84.16 USD
- Negative: ≈ $51.27 USD
At least, an EPS of $1.30 USD is required for the next quarter, to keep the metrics.
In other hand, if an average Forward EV/EBITDA 10 is set, an EBITDA increases of ± 11%, a Net Debt increases of -22.4%, a Dividends increase of 0% and Shares Outstanding increases of ± 3.58%, the potencial spread price target for the next 12 months could be:
- Optimistic: ≈ $120.66 USD
- Neutral: ≈ $104.86 USD
- Negative: ≈ $90.16 USD
Finally, according to current P/S ration, a possible spread might be at:
- P/S 1: ≈ $52.02 USD
- P/S 3: ≈ $156.06 USD
The best analysis is yours!
M.F. J. Joel Padilla
Copyright: Joel Padilla 2024
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