To The Moon

Alibaba BABA is positioning itself for a potential turnaround in 2025, backed by China's expansionary monetary policy and the company's strategic initiatives. The recent second-quarter fiscal 2025 earnings revealed steady growth across core segments, with revenues reaching $33.7 billion, beating analyst expectations.

Monthly active consumers on Taobao and Tmall reached new all-time highs, while the implementation of a 0.6% software service fee and increased adoption of AI-powered marketing tools signal improved monetization capabilities. The successful 11.11 Global Shopping Festival achieved record-high consumer engagement, with 88VIP membership growing to 46 million, demonstrating robust customer loyalty.

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Cloud Computing: The Growth Engine

Alibaba Cloud emerges as a pivotal growth driver, with revenues excluding consolidated subsidiaries growing 7% quarter over quarter. Most notably, the segment's AI-related products maintained triple-digit growth for the fifth consecutive quarter, highlighting its technological prowess and market potential. As China's leading cloud service provider with a 37% market share domestically, Alibaba Cloud is expanding its footprint in Southeast Asia with new data centers planned in Malaysia, the Philippines, Thailand and South Korea. The cloud segment's adjusted EBITA increased 89% to RMB2.7 billion, reflecting improved operational efficiency and a shift toward high-margin public cloud products.

Strategic Investments and Financial Position

The Alibaba International Digital Commerce segment demonstrated strong momentum with 29% revenue growth, primarily driven by cross-border business expansion. The AliExpress Choice initiative and Trendyol's international operations show promising growth in European and Gulf markets. The company maintains a robust financial position with $50.2 billion in net cash, enabling continued strategic investments while supporting an aggressive share repurchase program. In the September quarter, Alibaba repurchased shares worth $4.1 billion, with $22 billion still authorized for future buybacks, demonstrating confidence in its long-term value proposition.

Price Performance & Valuation

The stock has gained 9.7% year to date compared with the Zacks Internet-Commerce industry, the Zacks Retail-Wholesale sector and the S&P 500’s return of 37.6%, 28.1% and 24%, respectively.

Alibaba’s dominant e-commerce position in China remains threatened by global bigwigs like Amazon AMZN and eBay EBAY. Also, BABA's growth in the global cloud market has been significantly hindered due to rising competition from the leading cloud players, namely Amazon, Microsoft and Alphabet’s GOOGL Google.

BABA’s P/E F12M Ratio Depicts Discounted Valuation

Investment Case and Outlook

Despite the stock's underperformance in recent years, several factors support a potential turnaround in 2025. China's shift toward "appropriately loose" monetary policy, reminiscent of its successful 2008 stimulus approach, could provide significant economic tailwinds. The company's strategic investments in AI infrastructure and cloud computing position it well to capitalize on the growing demand for digital transformation services. The completion of its primary listing in Hong Kong and inclusion in the Southbound Stock Connect has broadened its investor base, with significant net inflows of HK$46 billion, indicating strong institutional interest.

The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $138.26 billion, indicating 5.95% year-over-year growth. With the Zacks Consensus Estimate for fiscal 2025 earnings indicating an upward revision of 11.5% over the past 60 days to $9.30 per share, the market appears increasingly confident in Alibaba's growth trajectory.

Conclusion

While Alibaba faces intense e-commerce competition and geopolitical challenges, its diversified business model, strong financial position and strategic focus on high-growth areas make it an intriguing opportunity for patient investors. The company's continued investment in core capabilities, improving operational efficiency in loss-making segments and strong cash flow generation support its long-term growth prospects. With the stock trading at conservative multiples despite its market leadership and growth potential, 2025 could indeed mark a turning point for this Chinese tech giant.

However, investors should carefully monitor several risk factors, including U.S.-China relations, domestic competition, and the pace of economic recovery in China. The success of the company's international expansion efforts and the monetization of its cloud investments will be crucial in determining its future performance

As Alibaba balances growth investments with shareholder returns through buybacks and operational improvements, the stock presents an opportunity for investors looking to capitalize on China's digital economy transformation at a potentially attractive valuation point.

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