Alibaba Group Holding Limited (NYSE: $BABA) is a multinational tech company whose primary business is providing a digital marketplace that merchants and consumers can connect to buy and sell goods. In recent years, it has expanded operations into digital media, cloud computing, entertainment, and other digital solutions. Based in Hangzhou, China, Alibaba operates the popular online retail platforms Taobao and Tmall.
On February 7, 2024, Alibaba released its fourth quarter and full-year results. It had a robust quarter with a 5% year-over-year revenue growth. However, it fell short of analysts’ expectations due to challenges in the retail market and a sluggish economic recovery in China, the world’s second-largest economy.
Alibaba’s Strategic Move: $25 Billion Repurchase
Alibaba announced a $25 billion increase to its stock repurchase program, ending in March 2027. Under the existing program, Alibiba has $35.3 billion available. During Q4, the company repurchased stock worth $2.9 billion, totaling $9.5 billion in FY23. Alibaba’s share repurchase program in FY23 led to a net reduction of 3.3% in outstanding shares.
The robust share repurchase program signals the company’s optimism about its business outlook and cash flow. Additionally, it aims to instill confidence among investors and provide reassurance amidst challenging market conditions.
Alibaba’s shares experienced a brief surge of over 5%, reflecting positive investor sentiment. However, this upward momentum was short-lived, as the gains disappeared during pre-market trading.
Alibaba’s Fiscal Overview: Revenue, Income Dynamics
The company’s revenue was $36.67 billion, a 5% year-over-year increase. Operating income was $3.17 billion, for an operating margin of 9%, reflecting a 36% year-over-year decrease. This decline was mainly due to impairments of Sun Art’s intangible assets and the goodwill impairment of Youku.
In the fourth quarter ending December 2023, net income attributable to ordinary shareholders was $2 billion, while overall net income was $1.51 billion, a significant 77% decrease.
GAAP Net Income and Diluted Earnings
GAAP net income for the December 31, 2023, quarter was $6.75 billion, a 4% decrease from the same quarter in 2022. Diluted earnings were $0.80, and diluted earnings per share were $0.10. Non-GAAP diluted earnings were $2.67, down 2% year-over-year, and non-GAAP diluted earnings per share were $0.33, also down 2% year-over-year.
Net cash provided by operating activities was $9.12 billion, down 26% compared to the same quarter in 2022. Adjusted EBITDA increased by 1% to $8.39 billion, while Adjusted EBITA increased by 2% to $7.44 billion in the fourth quarter.
Free cash flow, a non-GAAP measure of liquidity, amounted to $7.96 billion, reflecting a 31% decrease from the previous year. This decrease was attributed to increased capital expenditures and various one-time factors, including the timing of income tax payments and working capital changes related to several business units. Sales and marketing expenses in Q4 were $4.76 billion, constituting 13% of revenue, compared to 12% in the same quarter last year.
BABA Stock Price Declines on Q4 Results
After Alibaba’s fourth quarter results were released, investors responded negatively, causing the stock to slide by 5.41% to $74 per share as of 12:16 PM on February 7, 2024, in New York.
The stock is trading below its 52-week high of $109.81, close to its 50-day moving average of $73.52, and below its 200-day moving average of $83.83. BABA stock has experienced a 29.72% decline over the past 12 months, and as of February 7, 2024, the stock is down 4.70% year-to-date.
Alibaba’s 2023 Challenges: Market Dynamics
In 2023, Alibaba Group faced major headwinds in China; on December 1, PDD Holdings, which owns Pinduoduo and Temu, overtook Alibaba, becoming the most valuable Chinese e-commerce company. This shift occurred after Morgan Stanley downgraded Alibaba due to concerns about its cloud business and customer management revenue.
As Chinese consumers increasingly opt for affordable local e-commerce options like PDD Holdings, Alibaba has faced heightened competition, challenging its market dominance. Last year, Alibaba opted not to separate its cloud business, citing uncertainties linked to U.S. restrictions on chip exports to China. This choice had a substantial impact on the company’s market value.
Eddie Wu, Alibaba Group’s Chief Executive Officer, expressed confidence in the company’s strategic execution, emphasizing revitalizing core businesses like e-commerce and cloud computing. Wu outlined plans to enhance user experiences, drive Taobao and Tmall Group growth, and strengthen market leadership in the upcoming year.
Alibaba’s Future: Insights from Analysts
Over the past three months, 20 Wall Street analysts have provided 12-month price targets for Alibaba’s stock. The average price forecast is $118.00, with the most optimistic predicting $150.00, while the most pessimistic forecast is $85.00. Compared to Alibaba’s current share price of $73.60, the average price target is a 60.33% upside
Among the analysts, the majority (18 out of 20) recommend buying Alibaba stock at the current levels. Only two analysts advise holding the stock.
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