Skip to Content
Stock Analyst Update

Alibaba Still Undervalued Despite Leadership Change

We're keeping our fair value estimate for the wide-moat firm as Jack Ma steps away.

Mentioned:

Jack Ma's decision to step away from wide-moat  Alibaba's (BABA) executive chairman role in 2019 and the company's board of directors will not impact our positive long-term bias for two reasons. First, we believe recent results demonstrate that Alibaba has a deep management bench, including current CEO Daniel Zhang (who will transition into the chairman role in 2019 and played a central role in the development of the Singles Day shopping event, building the Tmall platform from a regional to global B2C platform, and deploying several of Alibaba's "New Retail" strategies) and executive vice chairman Joe Tsai. Second, we believe Ma's involvement with the Alibaba Partnership--a 36-member group of core company managers--will allow him to stay involved with certain strategic decisions.

We remain comfortable with our $240 fair value estimate and believe Alibaba is one of the more undervalued investment stories in the consumer category. We believe that negative trade war headlines have been masking steps to increase engagement among its existing user base and incubate new potential avenues of growth. Our fair value estimate assumes a revenue CAGR of almost 37% for fiscal 2019-23, including 61% growth in fiscal 2019 (consistent with management's 2019 revenue growth target of 60%, or 50% excluding acquisitions). We expect adjusted EBITDA margins to contract to the high-20s the next few years (versus 42% in fiscal 2018) due to technology, logistics, product development, and marketing investments as well as the impact of acquired businesses. However, we expect margins to inflect as investments wind down and nascent businesses scale, bringing our fiscal 2028 adjusted EBITDA margins back to the low- to mid-30s.

Despite our confidence in management's ability to execute following upcoming management changes, we will maintain our Poor equity stewardship rating due to questions about partnership voting rights, variable interest entity (VIE) structure, and convoluted ownership structure.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.