Alibaba Group Holding Limited

BABA Details

Alibaba Group Holding Limited (NYSE: BABA) is a holding company that provides merchants, brands, and other organizations with a technical framework and advertising reach to help them utilize the power of innovative technology to communicate with their customers and run more efficiently. BABA has four business segments: 1) Core Commerce, 2) Cloud Computing, 3) Digital Media and Entertainment, 4) Innovation Projects and others. BABA has 2.72 billion American Depository Shares (ADS) listed and outstanding (each ADS representing eight ordinary shares).

Latest News:

• Catalyzing Entrepreneur Economy: On December 14, 2021, BABA announced that 50 entrepreneurs would receive USD 10,000 rewards from its Grants Program. The Entrepreneur Economy will be fueled by a total of USD 500,000 in grant support. The winners were chosen from a pool of over 12,000 applicants who submitted their product idea or go-to-market strategy for review by the panel of experts.
• Change in Leadership: On December 05, 2021, BABA announced that Toby Xu, its Deputy Chief Financial Officer, will replace Maggie Wu as Chief Financial Officer on April 01, 2022. Maggie will remain a partner in the Alibaba Partnership and a member of the BABA board of directors as an executive director.

Robust Q2FY22 Results:

• Rise in Revenues: The company's total revenue increased by 29.43% YoY to RMB 200.69 billion in Q2FY22 (ended September 30, 2021), compared to RMB 155.06 billion in Q2FY21, owing to development in China commerce retail and cloud computing businesses.
• Fall in Net Income: BABA reported a decrease in net income (attributable to common shareholders) to RMB 5.37 billion during Q2FY22 vs. RMB 28.77 billion in Q2FY21, owing to the decline in market prices of its investments in publicly quoted entities.
• Strong Balance Sheet: The company had RMB 459.21 billion in cash and cash equivalents (including short-term investments) as of September 30, 2021, and RMB 151.75 billion in total debt.

Key Risks:

• Reliance on Alipay: BABA relies on Alipay for most payment processing and escrow services. In FY21, Alipay was used to settle 70% of the Gross Merchandise Value (GMV) in the China retail marketplace. As a result, any decline in its quality, usability, convenience, or attractiveness could harm its operations and cash flows.
• Political and Regulatory Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (if the US authorities cannot satisfactorily audit the company for three consecutive years).

Outlook:

• FY22 Estimates: In its Q2FY22 press release, BABA stated that it expects to achieve YoY growth of 20 – 23% in its FY22 revenues.

Valuation Methodology: Price/Cash Flow Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BABA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

BABA's share price has fallen 50.87% in the past twelve months and is currently leaning towards the lower band of the 52-week range of USD 108.70 to USD 274.29. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 38.62. We have valued the stock using the Price/Cash Flow multiple based relative valuation methodology and arrived at a target price of USD 156.38.

Considering the growth prospects, significant track record, strong balance sheet, market dominance, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 125.78, up 2.90% as of December 14, 2021, 12:20 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Activision Blizzard, Inc.

ATVI Details

Activision Blizzard, Inc. (NASDAQ: ATVI) operates as a developer and publisher of interactive entertainment content for video game consoles, personal computers (PC) and mobile devices. Its operating segments are 1) Activision Publishing, Inc., which offers the Call of Duty League franchise, 2) Blizzard Entertainment, Inc., which is engaged in the digital distribution of Blizzard and Activision games, online social networking, and user-generated content development and 3) King Digital Entertainment, whose key offering is Candy Crush saga.

Latest News:

• Launch of Call of Duty: Vanguard: On November 05, 2021, ATVI launched Call of Duty: Vanguard globally, which has unrivalled Call of Duty content, including a riveting single-player campaign, 20 multiplayer maps on day one, and an all-new Zombies experience that expands on the existing story canon. Vanguard also has the most profound Warzone integration yet, with the new Warzone Pacific, which includes the new map "Caldera," launched on December 02, 2021.

Q3FY21 Results:

• Flattish Revenue Growth: The company reported YoY growth of 5.94% in total net revenues to USD 2.07 billion in Q3FY21 (ended September 30, 2021) from USD 1.95 billion in Q3FY20, driven by 6.53% growth in In-game subscription and other revenue.
• Improvement in Net Income: Q3FY21 net income increased to USD 639 million from USD 604 million in Q3FY20, representing diluted earnings per share (EPS) of USD 0.82.
• Strong Balance Sheet: As of September 30, 2021, the company had cash & cash equivalents (including money market and other short-term investments) of USD 10.00 billion and total debt of USD 3.61 billion.

Key Risks:

• Franchise Concentration Risk: Sales associated with the Call of Duty, Candy Crush, and World of Warcraft franchises accounted for 76% of ATVI's FY20 revenues. Such reliance on a few product categories could be detrimental to its operations in the long run.
• Third-Party Dependence: ATVI's product sales heavily rely on the success and widespread acceptance of third-party video game consoles, with Sony's PS4 and PS5, Microsoft's Xbox One and Series X, and Nintendo's Switch accounting for a significant portion of the company's net revenue. Any drop in consumer demand for such consoles could harm the company's bottom line.

Outlook:

Financial Outlook (Source: Q3FY21 Earnings Presentation, November 02, 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ATVI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ATVI's share price has declined 38.21% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 56.40 to USD 104.53. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.05. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 70.37.

Considering the correction in the stock price in the past six months, strong profitability margins, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the current price of USD 59.30, up 1.02% as of December 14, 2021, 12:32 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Weibo Corporation

WB Details

Weibo Corporation (NASDAQ: WB) is a China-based social media platform for sharing, producing, and discovering digital content. Customers in the advertising and marketing industries can also promote their brands, products, and services to consumers. It derives most of its revenue from selling advertising and marketing services, including social display advertisements and promoted marketing products. It had 573 million monthly active users (MAUs) and 248 million average daily active users (DAUs) as of September 2021. As of December 14, 2021, the company's market capitalization stood at USD 14.86 billion, with 243.29 million American Depository Shares (ADS) listed and outstanding (each ADS representing one Class A ordinary shares).

Latest News:

• Pricing Global Offering: On December 02, 2021, WB priced its global offering of an aggregate of 11 million Class A ordinary shares of the company, borne in equal proportion by WB and Sina Corporation. WB's global offering comprises Hong Kong public offering and International offering at an offer price of HKD 272.80 per offer share, translating to USD 35.01 per ADS, based on a ratio of one Class A ordinary share per NASDAQ-Listed ADS.

Q3FY21 Results:

• Surge in Topline: The company reported YoY growth of 30.42% in total revenue to USD 607.43 million in Q3FY21 (ended September 30, 2021) from USD 465.74 million in Q3FY20, driven by growth in both segments.
• Expansion in Net Income: Net income for Q3FY21 increased to USD 181.74 million compared to USD 33.80 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short term investments) of USD 2.71 billion and total debt (including unsecured senior notes) of USD 2.43 billion.

Key Risks:

• Regulatory and Political Risk: Moreover, the Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Outlook:

• Q4FY21 Guidance: WB anticipates a YoY growth of 15%-20% on a constant currency basis in Q4FY21.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

WB Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

WB's share price has declined 44.19% in the past three months and is currently leaning towards the lower-band of the 52-week range of USD 29.04 to USD 64.70. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 20.88. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 34.08.

Considering the correction in the stock price in the past three months, strong profitability margins, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 28.83, down 3.51% as of December 14, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.