Alibaba Group Holding Limited (NYSE: BABA) is a holding company that provides merchants, brands, and other organizations with a technical framework and advertising reach to help them utilize the power of innovative technology to communicate with their customers and run more efficiently. BABA has four business segments: 1) Core Commerce, 2) Cloud Computing, 3) Digital Media and Entertainment, 4) Innovation Projects and others. BABA has 2.72 billion American Depository Shares (ADS) listed and outstanding (each ADS representing eight ordinary shares).

 Key highlights

• Rise in Annual Active Consumers: Recently the company stated that its Annual Active Consumers “AACs” across the world reached approximately 1.24 billion for the twelve months ended September 30, 2021, an increase of approximately 62 million from the twelve months ended June 30, 2021. This includes 953 million consumers in China and 285 million consumers overseas, representing a quarterly net increase of 41 million and 20 million, respectively.
• Healthy guidance on FY 2022: Based on the current view of macroeconomic conditions and the competitive landscape the company recently revised its fiscal year 2022, revenue guidance and expects to clock a growth in a range of 20% to 23% in its revenue, which is a key positive.
• Change in management: Recently, the company announced that Toby Xu, its Deputy Chief Financial Officer, will replace Maggie Wu as Chief Financial Officer on April 01, 2022. Maggie will remain a partner in the Alibaba Partnership and a member of the BABA board of directors as an executive director.

Financial overview of Q2 2022

Source: Company Filing 

• Rise in Revenues: The company's total revenue increased by 29.43% YoY to RMB 200.69 billion in Q2FY22 (ended September 30, 2021), compared to RMB 155.06 billion in Q2FY21, owing to development in China commerce retail and cloud computing businesses.
• Fall in Net Income: BABA reported a decrease in net income (attributable to common shareholders) to RMB 5.37 billion during Q2FY22 vs. RMB 28.77 billion in Q2FY21, owing to the decline in market prices of its investments in publicly quoted entities.
• Strong Balance Sheet: The company had RMB 459.21 billion in cash and cash equivalents (including short-term investments) as of September 30, 2021, and RMB 151.75 billion in total debt.

Risks associated with investment: The company heavily relies on Alipay for most payment processing and escrow services. In FY21, Alipay was used to settle 70% of the Gross Merchandise Value (GMV) in the China retail marketplace. As a result, any decline in its quality, usability, convenience, or attractiveness could harm its operations and cash flows.

Valuation Methodology (Illustrative): EV to Sales

*1RMB=0.16USD

Analysis by Kalkine group

Stock recommendation

In the reported quarter the company continued to firmly invest into its three strategic pillars of domestic consumption, globalization, and cloud computing to establish solid foundations for the long-term goal of sustainable growth in the future. Additionally, its global annual active consumers across the Alibaba Ecosystem reached approximately 1.24 billion, with a quarterly net increase of 62 million consumers, and it is on track to achieve the longer-term target of serving two billion consumers globally, which is a key positive. Moreover, the management shared its guidance on its FY 2022 revenue and expects to clock a growth in a range of 20%-23%, which is a significant added advantage. Hence considering the growth prospects, significant track record, strong balance sheet, market dominance, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 118.71 during the market hours at 11:51 AM as on January 25, 2022.

1-Year Technical Price Chart (during the market hours at 11:51 AM as on January 25, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.