Earnings Preview | Alibaba Expected to See Slow Revenue Growth in Q1, Profitability Continues to Recover

Alibaba will release its Q4 2023 (Q1 2023) financial report on May 18.

According to Bloomberg, Alibaba's adjusted net profit for Q1 is expected to be RMB 24.6 billion, a YoY increase of 14%, while revenue is expected to increase by 3% to RMB 209.2 billion.

In terms of business segments, it is expected that new businesses such as Taotet, Taocaicai, and Hema will significantly reduce losses, while investment in core and international e-commerce businesses will increase to stimulate consumption and enhance user stickiness.

In addition, Guoxin Securities stated that Alibaba's large-scale model has broad application prospects in multiple scenarios. Alibaba's CEO, Mr. Zhang Yong, stated that "all Alibaba products will be upgraded to the large-scale model in the future," which is expected to bring efficiency improvements and revenue growth.

CITIC Securities predicts that Alibaba's Q1 revenue will increase by 4.2% YoY to RMB 212.6 billion, and adjusted EBITA will increase by 49% YoY to RMB 23.6 billion, corresponding to a profit margin of 11.11%.

TF Securities predicts that Alibaba's Q1 revenue will remain flat YoY at RMB 204.1 billion, and believes that Alibaba will continue its cost reduction and efficiency improvement strategy. Non-GAAP net profit is expected to be RMB 29 billion, a YoY increase of 35.4%, and Non-GAAP gross margin is expected to be 14.2%, a YoY increase of 3.7%.

As consumption gradually recovers, Alibaba's Q1 revenue is expected to increase by 1% YoY, and the overall revenue growth rate of the group is expected to be low single digits. Adjusted EBITA is expected to increase by 3 percentage points YoY.

Segment Business Forecast

CITIC Securities predicts that in Q1, revenue from China commerce, international commerce, local services, Cainiao logistics, cloud computing, digital media and entertainment, innovation, and other businesses will increase by 1.2%, 13.7%, 14.5%, 18.0%, 6.0%, -0.5%, and 56.3% YoY, respectively.

CITIC Securities stated:

• China commerce: It is expected that the company's GMV will decrease by a small single digit percentage in Q1, and the CMR growth rate will be slightly lower than the GMV growth rate, with a YoY decrease of 3.5%. The growth rate difference between CMR and GMV is expected to narrow in Q2.
• International commerce: It is expected that the retail business growth rate will be about 16% this quarter, and the wholesale business growth rate will be about 8.5%.
• Local services: Benefiting from the decline of the epidemic and the recovery of the offline economy, it is expected that the revenue growth rate will increase QoQ this quarter.
• Cloud computing: Revenue growth rate is expected to recover, and with Zhang Yong taking over as Alibaba Cloud Intelligence President and the incremental computing power demand brought by AIGC, it is expected that there is still a lot of room for cloud computing growth in the future.

Investment Advice

Guoxin Securities maintains a buy rating on Alibaba and a target price of HKD 136-144.

CITIC Securities predicts that Alibaba's revenue growth rate for FY2023-2024 will be 2.35% and 10.57%, and Non-GAAP net profit growth rate will be 4.13% and 10.75%, respectively. Using the segmented valuation method, the corresponding valuations for China Commerce and Alibaba Cloud are $128.39 and $19.52 per ADS, respectively. The target price is $147.91 per ADS, corresponding to HKD 144.40 per share.