The 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 announced. 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, the 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, down 2% year on year. The year-on-year decline in Alibaba-SW Cloud's revenue reflects the impact of COVID-19 and the impact of a top customer gradually ceasing to use overseas cloud services for international business due to non-product-related reasons.

While the reasons are reasonable, Alibaba-SW Cloud's growth slowdown did not begin in the fourth quarter. Considering Alibaba-SW Cloud recently announced a sharp 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 have no confidence in whether the cloud business can resume high growth in the future:

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

Local consumer services, which mainly include “to home” and “to destination” businesses, such as Are You Hungry, Amap, and Fliggy, had revenue of 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 grew 3% in the fourth quarter. However, 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?” and the promotion of high-quality original content. There's also “Blood of Youth.” Coupled with the normalization of offline ticketing demand, it has led to strong growth in businesses such as barley and taotaotao.

Among enterprises as a whole, despite the business chaos in China, the outbreak in the fourth quarter was really serious. In March, the increase in GMV for online physical goods on Taobao and Tmall (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 along with economic recovery.

However, the currently released economic data are still not optimistic. If the CPI fell to 0.1% in April, there is a risk of deflation. Furthermore, PPI data are not optimistic, and overall consumption is weak. This is also a key factor in suppressing Alibaba-SW stock prices.

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

There are various negative factors, but Alibaba-SW's current valuation is seriously underestimated, and 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 critical that Alibaba-SW can withstand the e-commerce price war.