Alibaba's Core Marketplace Recovery On Track, Split Likely To Unlock Value, Bullish Analyst Says

Benchmark analyst Fawne Jiang reiterates Alibaba Group Holding Ltd BABA with a Buy and a $180 price target.
According to Jiang's checks, BABA core marketplace recovery in 4Q23 was mainly on track, with GMV down mid-low-single-digit and CMR down at low single digit (-3% Y/Y per her estimates).
Direct sales may see some softness due to the normalcy of offline grocery shopping, which the analyst regard as a short-term headwind.
In addition, Jiang views BABA's recent organizational restructuring as a strategic positive, which should help to unlock value as the market shifts towards SoTP valuation.
Core commerce recovery on track. Despite a slow start in January and early February due to infection disruptions, according to her checks, the second half of 4Q continued to track positive and better than expectations, thanks to a healthy recovery of discretionary categories leading to the analyst's CMR target boost.
On the negative side, the online grocery business (i.e., Freshippo) may have seen some near-term headwinds in the post-lockdown era as consumers are resuming their offline grocery shopping leading to Jiang lowering her direct sales projections.
Jiang moderately lowered her 4Q23 revenue factoring 1P headwinds and raised adjusted EBITDA projection due to outperformance on CMR.
Jiang views the restructuring as a strategic positive in two folds. Valuation-wise, it will shift the market and investors' focus from blended P/E to SoTP valuation, which recognizes the hidden value of multiple growth assets. The split should give each business unit the much-needed autonomy to fend off competition better. The restructuring could help to boost BABA's fundamental competitiveness longer term.
Price Action: BABA shares traded lower by 0.38% at $100.34 premarket on the last check Wednesday.

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