Morningstar | Altaba Stock Has Surged 31% Year-to-Date, But Remains Undervalued. See Updated Analyst Note from 04 Mar 2019
We continue to value Altaba at $98 per share, based on our view that wide-moat-rated Alibaba, which is Altaba's main holding, is meaningfully undervalued as compared with our $240 fair value estimate for Alibaba's U.S. ADR. Morningstar continues to view Alibaba as attractively priced even after its 37% year-to-date runup. We believe this supports our bullish view on Altaba, which is trading at a 0.78 price/fair value, similar to Alibaba’s.Regarding Alibaba, Morningstar’s long-term bias on the firm remains intact following its third-quarter update in January, as the company continues to put up numbers that validate the resiliency of its business model during uneven economic conditions but also the monetization opportunities from the network effect behind Morningstar’s wide moat rating on the firm. China skeptics are painting third quarter's 41% top-line growth as a negative--Alibaba's slowest growth quarter since 2016--but the trajectory may be positive as Tmall GMV continues to outpace broader China GMV trends (29% versus 24% using iResearch estimates). More important, strong results from ancillary businesses like Ele.me/Koubei, and New Retail/Freshippo stores (formerly Hema) validated user engagement trends and signaled future monetization opportunities.
Alibaba share price appreciation may be difficult until trade war headlines subside but there are four reasons the market is underestimating Alibaba's future growth. One, Alibaba's direct exposure to tariffs is limited to only a low-single-digit percentage of revenue.
Two, economic downturns have historically offered e-commerce marketplaces opportunities to lock in new buyers/sellers, which then engage in other higher-margin products and services as conditions stabilize. Three, the Chinese consumer remains relatively healthy, backed by wage growth, solid personal balance sheets, and access to consumer credit. Last, government VAT and personal income tax adjustments may create spending stimulus for middle-income consumers.
Altaba is a publicly traded, non-diversified, closed-end management investment company. The company's investment objective is to seek to increase the price per share at which it trades relative to then-existing values of its principal underlying assets (the Alibaba Group Holding Limited (Alibaba) ordinary shares and American Depositary Shares and Yahoo Japan Corporation (Yahoo Japan) shares of common stock). In addition to the Alibaba shares and Yahoo Japan shares, the company also owns investments in certain additional companies Excalibur IP, LLC, which owns a portfolio of patent assets and short-term investments.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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