Alibaba Earnings: More Positive Outlook Despite Mixed Results

Key Morningstar Metrics for Alibaba Group Holding

• Fair Value Estimate: $96.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Very High

What We Thought of Alibaba Group Holding’s Earnings

Alibaba Group Holdings’ BABA March-quarter revenue beat our estimate by 1% but missed our adjusted EBITA estimate by 2%. We find management’s fiscal 2025 (ending March) outlook on gross merchandise volume growth, take rate, and cloud revenue encouraging. We think the 6% share price correction during US trading hours after the results happened due to the 5% year-on-year decline in adjusted EBITA amid higher investments. That said, we expect those investments to bring positive returns in the longer term.

We are pleased that the online GMV of the cash-cow business, Taobao and Tmall Group, achieved double-digit year-over-year growth (beating our 8% estimate) thanks to its focus on large product assortment, competitively priced products, and customer experience. However, adjusted EBITA for Taobao and Tmall fell 1% year on year, demonstrating Alibaba’s strategy to prioritize market share gain over profitability in the near term.

We have raised our fair value estimate by 2% to $96 per share on higher GMV assumption and customer management revenue in the next 10 years, partly offset by lower adjusted EBITA margin assumption due to higher investments. We think our valuation could be driven higher if there is a meaningful improvement in discretionary spending and a consumption upgrade, and if Alibaba can prove it can consistently maintain and regain market share for Taobao and Tmall while continuing to grow earnings and expediting capital return to shareholders.