Alibaba: Fair Value Cut 25% but Shares Still Cheap, Discounting Ex-China E-Commerce Asset Value

We remain buyers of Alibaba despite a 25% cut in our fair value estimate to USD 128 per ADS/HKD 124 per share. At the current share price, investors are only paying for the value of Taobao and Tmall Group, Alibaba’s strategic investments, and cash and cash equivalents while getting the value of all the other five businesses groups for free, based on our analysis. Our alternative sum-of-the-parts valuation, which adopts a 50% discount for these five groups and strategic investments, is USD 138 per ADS/HKD 134 per share. However, we still prefer PDD Holdings over Alibaba, given its rapid market share increase and improving profitability.