---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 226837
conversation_id: 6c3c2382-7ebb-4c16-8543-0d6d71251b13
citations: 0
created: 2026-05-31 19:24:31Z
---

# How does Alibaba’s valuation compare to peers, and what justifies its premium/discount?

# Alibaba (BABA US / 9988 HK) — Valuation vs Peers and What Justifies the Discount

## 1. Where the stock currently trades

Per CLSA's 15-May-2025 post-Mar-Q review, Alibaba is trading at **~12x FY27CL adjusted PE**, which the analyst characterises as "mainly reflecting ecommerce valuation and net cash, with the cloud segment a free option" — a clear signal that the market is assigning **zero multiple to AliCloud** [3]. The earlier 7-May read pegged it at **11.5x FY27 adj PE against a c.10% 3-year EPS CAGR**, i.e. a PEG of roughly 1.1x [5]. The model carries the stock at:

| Year to 31-Mar | FY26CL | FY27CL | FY28CL |
|---|---|---|---|
| Adjusted PE (x) | 12.3 | 11.3 | 10.3 |
| FCF yield (%) | 4.1 | 5.7 | 7.6 |
| Dividend yield (%) | 0.9 | 0.9 | 0.9 |
| Net cash/equity (%) | 9.1 | 16.9 | 25.1 |

(Source: CLSA forecasts) [4]

## 2. CLSA's fair-value framework — implied 15.2x FY27CL on SOTP

The target price of **US$165 (HC Outperform, ~33% upside on 15-May data)** is built sum-of-the-parts. The key insight: the **implied multiple at fair value is 15.2x FY27CL adj PE**, i.e. CLSA argues BABA *should* trade at ~3 turns higher than today's tape [1][2]:

| Segment | Method | Equity value (US$bn) | Per share (US$) |
|---|---|---|---|
| Core commerce (TTG) | Implied 10.6x FY27CL adj PE | 250 | 105 |
| AliCloud | 3.5x FY27CL P/S | 65 | 27 |
| Net cash | — | 43 | 18 |
| **Core businesses (DCF)** | 12.4% WACC, 1% TG | **358** | **150** |
| Ant Group (33% stake) | 60% discount to IPO value (US$112bn) | 37 | 15 |
| **Total SOTP** | **Implied 15.2x FY27CL adj PE** | **395** | **165** |

(Source: CLSA, 15-May-2025) [1]

Note the segment math: AliCloud alone is being valued at **US$65bn (3.5x FY27 P/S)** — down from 5x P/S in the February template — but it still represents ~16% of fair-value equity and ~US$27/sh that the current tape is not pricing [1][2].

## 3. Peer set — CLSA's covered China-internet comps (~21 Apr 2025 prices)

The cleanest side-by-side comes from CLSA's 21-Apr-2025 "ADR delisting risk" note [7]. All ratings are Outperform / High-Conviction Outperform; upside is implied vs CLSA TP:

| Stock | Rating | Mkt Cap (US$bn) | Price | CLSA TP | Up/Down |
|---|---|---|---|---|---|
| **Alibaba (BABA US)** | **HC O-PF** | **260.0** | **US$108.9** | **US$165** | **+51.6%** |
| Tencent (700 HK) | HC O-PF | 543.1 | HK$458.0 | HK$645 | +40.8% |
| PDD (PDD US) | O-PF | 130.1 | US$93.69 | US$150.4 | +60.5% |
| NetEase (NTES US) | O-PF | 62.5 | US$98.73 | US$120 | +21.5% |
| Trip.com (TCOM US) | O-PF | 35.9 | US$54.85 | US$71.5 | +30.4% |

(Prices as of close 19-Apr-2025) [7]

From the 16-Apr "Heating up" note, the same framework also captures **Meituan (3690 HK, O-PF, TP HK$217, +60.9% upside)** [9], **Baidu (BIDU US, O-PF, TP US$120, +41.9% upside)** [10], and **PDD (TP US$150.4, +59.9%)** [8].

Notably, **Alibaba's implied upside (~52%) sits in the middle of the China-internet peer pack** — higher than Tencent (40%) and NetEase (21%), lower than PDD (60%) and Meituan (61%) — i.e. CLSA does NOT view BABA as the cheapest name in the universe.

## 4. The PE-vs-PB / index-relative view

On CLSA's **High Conviction Outperform** sheet (5-Mar-2025), Alibaba was trading at:

| Metric (CY25e) | Alibaba | vs sector / EM |
|---|---|---|
| PER | **16.8x** | 137% of EM sector |
| PBR | **2.2x** | 116% of EM sector |
| Div Yield | 0.8% | -0.5 ppt to sector |
| ROE | 13.1% | -2.1 ppt to sector |
| EPS growth | 75.9% | +65 ppt to sector |

(Source: CLSA, IBES) [13]

The headline: **Alibaba is no longer "cheap on PE"** relative to EM consumer-discretionary peers — it trades at a **premium** to the EM sector aggregate (PE 137%, PB 116%) — and the implicit justification is the **~76% earnings growth in CY25e** which is the highest in CLSA's HC OP list [13].

## 5. What justifies the (relative) discount on a forward basis

CLSA's reasoning chain for why BABA *deserves to rerate higher* (i.e. why the 12x FY27 tape is a discount to the 15.2x SOTP fair value):

**Cloud as a free option** — At 3.5x FY27 P/S, AliCloud is implicitly worth US$27/share but the current price doesn't reflect it. With cloud revenue accelerating to "+20% YoY growth with margin expansion, driven by flourishing AI applications", CLSA views AliCloud as "best positioned to ride on China AI boom" [3].

**Mar-Q execution is on track** — 1Q25 total revenue/adj EBITDA grew 7%/36% YoY (ex Sun Art/Intime: revenue +10% YoY). TTG accelerated to 9%/8% revenue/adj EBITA growth on take-rate expansion. Cloud +18% YoY accelerating post-CNY [14].

**Take-rate expansion in TTG** — Ad efficiency improvement via AI tools for merchants. CLSA raised FY26 adj EBITA by 5-6% on take-rate expansion [3].

**Ant stake worth US$15/share** — Valued at a 60% discount to the prior IPO value (US$112bn) — already a significant haircut for regulatory/restructuring overhang [2].

**International commerce inflection** — AIDC losses "fall sharply" with quarterly breakeven expected in FY26 [3].

## 6. What justifies the (residual) discount in the tape — the bear case priced in

The market continues to apply ~3 turns of discount vs CLSA fair value. Key drags embedded in the current 12x FY27 tape:

**ADR delisting risk** — From CLSA's 21-Apr-2025 risk table, BABA carries "Low" delisting risk *because* of HK primary listing (9988 HK) — i.e. the structural protection vs PDD (high risk, no HK listing) and Trip.com / NetEase / JD / Baidu (medium with secondary HK listing). But the headline risk persists for the entire China-ADR group [15].

**Trade war exposure** — Covered in CLSA's 20-Apr "How to navigate the trade war 2.0" — Alibaba was specifically called out as one of six HC OP names to navigate the tariff escalation.

**Instant-commerce investment concern** — Explicitly flagged: "Instant commerce investment is a concern, but adj Ebita could still grow at teens-% in FY26" — i.e. margins are vulnerable to competitive spend response [3].

**Ant business overhang** — CLSA's own 60% IPO-value discount on Ant is a quantification of "restructuring and regulatory compliance could impair the growth and profitability of Ant's credit business" — already in the SOTP.

## 7. Where Alibaba's multiple sits versus the China rerating

CLSA's 5-Mar-2025 strategy note ("China rising?") gives the cross-asset frame:

- "China's 12-month forward sector adjusted **PE discount to overall EM has eroded to just 14%** (it was 34% in February 2024) with the bulk of valuation convergence occurring since September." [11]
- The five reasons China was rerating: (1) Xi's 17-Feb meeting with Jack Ma signaling end of disruptive tech regulation; (2) real-estate inventory bottoming; (3) net-export contribution; (4) earnings recovery (+11% delivered EPS YoY); and (5) **"Price action has removed much of the earnings multiple discount that China offered versus EM peers"** [12].

In other words: BABA's room to rerate from 12x → 15x is **smaller than it was a year ago** because the broader China discount has already compressed by ~20 percentage points. The remaining upside is now more **company-specific** (AI commerce / cloud monetisation / Ant) than **regional beta**.

## 8. Peer methodology cross-check — why BABA gets a higher implied multiple than the Internet pack

All CLSA China-internet valuation frameworks use the **same 12.4% WACC** (4% RfR, 1.2 beta, 7% ERP) but differ on terminal-growth and segment multiples:

| Company | Methodology | Cloud / Fintech Multiple |
|---|---|---|
| **Alibaba** | DCF (1% TG) + 3.5x FY27 P/S AliCloud + 60%-disc Ant | 3.5x P/S [1][2] |
| **Tencent** | DCF (1.5% TG) + 15% HoldCo disc on investments | 3x PS fintech, 5x PS cloud [6] |
| **PDD** | Pure DCF (0.5% TG) — no SOTP | n/a [8] |
| **Meituan** | Pure DCF (1% TG) | n/a [9] |
| **Baidu** | DCF on core + SOTP for Trip.com (DCF) + iQIYI (PE) | n/a [10] |

The differences worth noting:
- **Alibaba and Tencent are the only two China-internet names CLSA values on SOTP**, recognising explicit segment value for fintech (Ant / WeChat Pay) and cloud — for everyone else the cloud / fintech opportunity is buried inside the core DCF.
- Tencent's terminal growth is set 50bps higher than BABA's (1.5% vs 1.0%) — a reflection of the more durable social/gaming franchise and embedded WeChat ecosystem.
- The HK-primary listing (9988 HK) protects BABA from the deepest delisting tail (vs PDD), supporting a lower equity-risk premium than the market may apply [15].

## 9. Bottom line — premium or discount?

| View | Verdict |
|---|---|
| **vs EM consumer-discretionary peers (PE/PB)** | **PREMIUM** (PER 137%, PBR 116% of EM sector) — justified by 76% CY25e EPS growth [13] |
| **vs CLSA SOTP fair value** | **DISCOUNT** of ~3 turns (12x tape vs 15.2x implied fair value) — driven by market not paying for AliCloud / Ant / take-rate expansion [1][3] |
| **vs China-internet peer pack (% upside to TP)** | **MID-PACK** at +52% upside — wider than NTES/Tencent, narrower than PDD/Meituan [7] |
| **vs own history & China rerating** | The China-EM discount has already compressed from 34% to 14%; further rerating must be **company-specific**, not beta [11] |

The "premium/discount" answer therefore depends entirely on the reference set. Against the global EM consumer-discretionary universe Alibaba already trades at a premium; against CLSA's own DCF and segment math, it remains at a meaningful discount — with **AliCloud's value (US$27/share, ~16% of SOTP) as the single biggest unpriced asset**.

---

**Sources**
- [1] Alibaba — HC O-PF (Solid TTG growth), CLSA, 15-May-2025 (607959625LinqAlpha.PDF) — SOTP table
- [2] Same as [1] — SOTP narrative (Ant 60% discount, 3.5x cloud P/S)
- [3] Same as [1] — High-Conviction Outperform reiteration, "cloud as free option"
- [4] Same as [1] — Forecast summary (Adj PE 12.3x→10.3x FY26-28)
- [5] Alibaba — HC O-PF (Solid ecommerce & cloud growth), CLSA, 7-May-2025 (607958235LinqAlpha.PDF)
- [6] China internet (Internet tour: Accelerated AI adoption), CLSA, 9-Apr-2025 (607955430LinqAlpha.PDF) — Tencent SOTP details
- [7] China internet (Escalating ADR delisting risk), CLSA, 21-Apr-2025 (607956367LinqAlpha.PDF) — peer market cap/TP table
- [8] China internet (Heating up), CLSA, 16-Apr-2025 (607956119LinqAlpha.PDF) — PDD valuation
- [9] Same as [8] — Meituan valuation
- [10] Same as [8] — Baidu valuation
- [11] Global Equity Strategy (China rising?), CLSA, 5-Mar-2025 (607952321LinqAlpha.PDF) — EM PE discount compression
- [12] Same as [11] — Five reasons for China rerating
- [13] Same as [11] — HC OP comparison table with BABA at 16.8x PER 25e, 2.2x PBR
- [14] Alibaba — HC O-PF, CLSA, 15-May-2025 — Mar-Q results recap (TTG +9%, Cloud +18%)
- [15] China internet (Escalating ADR delisting risk), CLSA, 21-Apr-2025 — delisting risk matrix

*Note: All CLSA notes above. BABA does not appear to be covered by CLST (Taiwan affiliate); the analyst signatures use @clsa.com domains, consistent with CLSA-parent coverage. The corpus's latest BABA-focused note is 15-May-2025, so "latest CLSA view" should be read relative to that date, not today's 31-May-2026.*

