Spin-off won't save Alibaba

$BABA-SW(09988.HK)$ The results for the fourth quarter of fiscal year 2023 (corresponding to the first quarter of this year) were released. The data was mixed, and the stock price fell 6%.

In terms of growth, Alibaba-SW's fourth-quarter revenue was 208.2 billion yuan, lower than analysts' expectations of 209.2 billion yuan. However, under the condition of reducing costs and improving efficiency, net profit greatly exceeded expectations:

In addition to business in China, Alibaba-SW's most promising business is cloud computing, which mainly includes Alibaba-SW Cloud and DingTalk. In the fourth quarter, Alibaba-SW Cloud's revenue was 18.58 billion yuan, a year-on-year decrease of 2%. The year-on-year decline in Alibaba-SW Cloud's revenue reflects the impact of COVID-19, as well as the impact of a top customer phasing out of using overseas cloud services for international business due to non-product related reasons.

While the reasons are reasonable, the growth slowdown in Alibaba-SW Cloud did not begin in the fourth quarter. Considering Alibaba-SW Cloud recently announced a drastic reduction in product prices, up to 50%, then $trillion (00700) $$Tencent(TCEHY.US)$ Cloud and Mobile Cloud announced subsequent price cuts. It can be seen that competition in the cloud business has also begun to become more intense. Investors are not confident that the cloud business will resume high growth in the future:

The reported revenue was 13.6 billion yuan in the fourth quarter, an increase of 18% over the previous year, mainly driven by the increase in the average revenue of international logistics fulfillment solution service units and the increase in consumer demand for logistics services.

Local consumer services, which mainly include “home to home” and “to destination” businesses, such as Are You Hungry, Amap, and Fliggy, earned 12.5 billion yuan in the fourth quarter, an increase of 17% over the same period last year, mainly due to the increase in Hungry orders and average orders, which contributed to GMV's growth. At the same time, the cancellation of epidemic prevention and control has led to a sharp increase in tourism.

Revenue from digital media and entertainment increased 3% in the fourth quarter. In the face of Tencent Holdings and iQiyi, the business has lost its future$iQIYI(IQ.US)$ In the fourth quarter, Youku's total subscription revenue increased 13% year over year, thanks to an increase in average user revenue and “who is he?” Promotion of high-quality original content, etc. There is also “Blood of Youth.” Coupled with the normalization of offline ticketing demand, it has led to strong growth in businesses such as Barley and Taotao.

Across the enterprise, despite the turmoil in business in China, the outbreak in the fourth quarter was really serious. In March, Taobao and Tmall's online physical goods GMV growth (excluding unpaid orders) turned positive, mainly driven by strong growth in the clothing and health product categories. It can be seen from this that Alibaba-SW's e-commerce business will also rebound as the economy recovers.

However, the economic data released so far is not optimistic. For example, the CPI fell to 0.1% in April, and there is a risk of deflation. Furthermore, PPI data is not optimistic, and overall consumption is weak. This is also a key factor in suppressing Alibaba-SW's stock price.

In addition to macroeconomics, JD$JD-SW(09618.HK)$ It joined the 10 billion yuan subsidy war, which also cast a shadow over Alibaba-SW's e-commerce business. In times of economic downturn, lower prices are more competitive. This is also what the market is concerned about.

There are various negative factors, but Alibaba-SW's current valuation is seriously underestimated, plus the business spin-off can increase shareholder value. Alibaba-SW has the potential to reverse, but everything needs to wait for consumer data to actually pick up. At the same time, it is essential that Alibaba-SW can withstand the price war of e-commerce.