"When a company generates cash like a utility but trades like a cigar butt, it's time to re-check your calculator."
Alibaba is in this awkward yet fascinating spot. FY25 results show the Taobao/Tmall Group (TTG) delivering a steady stream of cash, while Cloud and International Commerce accelerate. The market assigns it a "China Discount," but our SOTP model points to a vastly different conclusion.
1. The Financials: Securing the Base, Igniting the Engines
The core logic of FY25 can be summarized as: Cash Flow on the Left, AI Cloud on the Right.
- Taobao/Tmall Group (The Cash Cow): Generating 45% of revenue, TTG is no longer chasing aggressive growth but pivoting to "User Experience" and "Retention." Moderate GMV growth and a massive RMB 196.2 billion in Adjusted EBITA provide the ammunition for the group's transition.
- Alibaba Cloud (The Second Engine): The highlight of the quarter. AI-driven public cloud revenue saw double-digit growth, with Adjusted EBITA surging. As China's dominant cloud provider, Alibaba is leveraging price cuts and its LLM (Qwen) to capture the B2B AI entry point.
- International Digital Commerce (The Spearhead): Driven by Lazada and AliExpress Choice, international revenue jumped 23%. Although still trading losses for growth, this remains Alibaba's only way out of domestic saturation.
2. Valuation Decode: Re-rating via SOTP
For a conglomerate as complex as Alibaba, traditional PE valuation fails. We adopt the SOTP (Sum of the Parts) method, pricing it as five independent entities.
Key Assumptions & Breakdown
Our model indicates a fair share price of 109. Here is the math:
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Core Commerce (Taobao/Tmall): $310 Billion (PE Valuation)
- Logic: Benchmarked against JD.com (10.2x) and PDD (9.1x).
- Assumption: We assign a mere 10x PE to the FY25 estimated EBITA of RMB 196B. This is a "dividend stock" valuation, completely ignoring any potential growth or GMV recovery.
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Cloud Intelligence: $104 Billion (PS Valuation)
- Logic: Benchmarked against global SaaS/Cloud peers (Salesforce 6.5x, Snowflake 11.3x, Kingsoft Cloud 3.7x).
- Assumption: We assign 5x PS on FY25 revenue. Given Alibaba Cloud's dominance in China and the TAM expansion from AI, 5x is a steep discount compared to the valuation multiples of AWS or Azure.
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International Digital Commerce (AIDC): $20 Billion (PS Valuation)
- Assumption: 1x PS. Despite 23% growth, we price it at "bargain basement" levels due to geopolitical risks and ongoing losses.
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Cainiao, Local Services & Others: $30 Billion (PS Valuation)
- Assumption: Bundled at 1x PS. This includes Ele.me, Amap, and Youku. 1x PS is essentially pricing these assets at liquidation value.
The Verdict: Where is the Margin of Safety?
Even applying the industry-lowest multiples across all segments (10x PE for commerce, 5x PS for cloud, 1x for the rest), the sum equals RMB 3.6 Trillion (~$500 Billion). This implies the market is currently valuing Alibaba's Cloud and International businesses at zero, and selling its core commerce cash flow at a discount.
3. Risks: Why Is the Market Skeptical?
If it's so cheap, why is the stock stuck at $100?
- Macro & Consumption Weakness: E-commerce is a proxy for the Chinese economy. The sluggish consumption recovery caps the valuation ceiling for TTG.
- Intense Competition: The offensive from PDD and Douyin (TikTok) Ecommerce is relentless. The battle for market share is far from over.
- Geopolitical Discount: This is the unavoidable pain for Chinese ADRs, preventing long-only global funds from building heavy positions.
Bottom Line: Alibaba's SOTP valuation offers a compelling Margin of Safety. You are effectively buying China's largest e-commerce platform at a 40% discount and getting China's largest cloud provider for free.
Disclaimer: This article is for informational purposes only and does not constitute investment advice.