Weaker than-expected performance at its core domestic e-commerce business had Alibaba shares trade down 5% overnight after reporting third-quarter results that didn’t show any acceleration in growth, a trend the market was hoping for with the stock having edged higher into the result. At the top line, quarterly revenue (in $US) of $36.07bn was up 5% but a shade below expectations of $36.3bn, while earnings per share (EPS) of $2.65 was down 3% YoY. They did announce an increase in their share buy-back program by another $25bn which gives them a total of $35bn in dry powder over the next 3 year while there was a few bright pockets, with international e-commerce growth picking up while margins in their Taobao-Tmall Group also solid, which implies they’re not sacrificing profit for the sake of growth.
- Co-Founders Jack Ma and Joe Tsai have recently bought ~$200m of stock, and along with the upscaled buy-back, it’s clearly designed to instil more confidence in the business, but that failed to work overnight.
While Alibaba is not growing, it’s not trading on a growth multiple, a PE of 8x has very little upside in earnings priced in while the share buyback will continue to reduce shares on issue driving better EPS and a lower multiple over time. We’ve held BABA for too long in the International Equities Portfolio, and given its valuation, platform scale, and the market’s low expectations for any sort of growth in the coming years, we are reticent to sell it, and if our position size was smaller (currently 6%) we would add to it at current levels.
MM is cautiously bullish BABA US at current prices
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