Conventum - Alluvium Global Fund on Alibaba Group Holding Limited
Thesis
Alluvium remains constructive on Alibaba despite a sharp quarterly share-price decline. The company reported that its AI investments are contributing to the business and management remains confident enough to continue investing heavily. Those investments have pushed free cash flow negative, but the lower share price raised the fund's estimate of maintainable earnings yield to 7.7%. Alluvium estimated the shares were trading at roughly a 30% discount to its valuation at quarter end.
“it is trading at a circa 30% discount to our valuation.”
Key risks
- Heavy AI capital expenditure has pushed free cash flow negative
- Weakness in the Chinese economy could pressure the company's legacy businesses