Alibaba: Cutting Fiscal 2024-26 Adjusted EBITA by 6%-8% Due to Higher Expansion Expenses

We now estimate Alibaba Group's revenue and adjusted EBITA for the fourth quarter of fiscal 2024 ending March to rise 5% and decline 3% year over year, respectively, compared with our previous forecasts of 3% and 38% increase. We raised our revenue estimate as we project customer management revenue—marketing services and commissions on transactions—to grow faster than expected, thanks to less market share loss than anticipated. On the other hand, the lower adjusted EBITA is attributed to substantially larger expansion expenses in the fast-growing Alibaba International Digital Commerce, or AIDC, and Cainiao Smart Logistics, or Cainiao. Management wants to increase investments in Cainiao to improve AIDC's logistics services. In addition, Alibaba increased compensation to retain Cainiao's employees while we expect cost savings in local services and digital media and entertainment to lag our forecast. As a result, we reduced Alibaba's adjusted EBITA during fiscal 2024-26 by 6%-8%. We maintained our fair value estimate at USD 94 per ADS (HKD 91 per share) as the effect of lower earnings is offset by adding back higher impairment in fiscal 2024 to our free cash flow calculation and lower share count. We think Alibaba continues to be undervalued. Its December quarter net cash, including short-term investments, accounts for 67% of its market cap as of the US close on April 11.