Alibaba’s Stock Dips Into Earnings – Updated With Results

Alibaba's stock (NYSE: BABA) closed down 2.18% at at $119.57 in the final session before earnings this morning.

Results in, with Alibaba hitting an EPS of $2.06, on revenue of $34.57B. Whilst revenue is slightly higher than the same period last year, EPS is sharply lower, and both metrics missed the street estimates.

The company said “This quarter, our strategic focus on consumption and AI + Cloud delivered strong growth. Our decisive investment in the quick commerce business achieved key milestones as we won consumer mindshare”

Analysts expected Alibaba to report earnings of ¥15.47 ($2.15) per share for the quarter, representing a slight decline from ¥16.44 in the same quarter last year. Revenue was projected to grow modestly, with an average estimate of ¥253.81 billion ($35.35B), up 4.35% year-over-year from ¥243.24 billion. The projections suggest steady top-line growth, but a cautious outlook on profitability as the company navigates a competitive and evolving market environment.

BABA's current price sits above both its 50-day ($116.45) and 200-day ($109.42) simple moving averages, with a bullish trend in tact, up 40.75% YTD despite yesterday's pullback. 

Alibaba’s aggressive push into AI is clearly bearing fruit. The launch of Qwen2.5-MAX, a flagship AI foundation model, has garnered significant attention, attracting over 290,000 companies and developers worldwide. This demonstrates Alibaba's commitment to not only developing cutting-edge AI but also integrating it effectively into its core business operations.

The company's strong recent performance and focus on AI have instilled confidence in some high-profile investors. Billionaire Ryan Cohen recently increased his stake in Alibaba to approximately $1 billion, while David Tepper's Appaloosa Management boosted its stake to over $1 billion by the end of 2024, making Alibaba one of their largest holdings. This influx of capital underscores a positive sentiment towards Alibaba’s future prospects.

Analyst Outlook: Bullish on BABA:

Analysts largely share this optimism. Benchmark Co. analyst Fawne Jiang raised the price target to $190, citing higher earnings and AI-driven growth. Jefferies maintained a Buy rating, emphasizing AI and cloud as key growth drivers.

Bank of America Securities' Joyce Ju increased the price target to $150, highlighting strong cloud revenue growth and sustained demand for AI products. The consensus among analysts is a Strong Buy, with an average price target of $152.36, suggesting a substantial potential upside for the stock.

While the prevailing narrative focuses on Alibaba's AI prowess, it's always worth questioning, and looking to flip side, and whether the market may be prematurely pricing in future gains. Despite the impressive growth figures, the actual contribution of AI to Alibaba's overall revenue remains a relatively small percentage.

Furthermore, the competitive landscape in AI is becoming increasingly crowded, with established tech giants and nimble startups vying for market share. While Alibaba's AI initiatives are undoubtedly promising, a healthy dose of skepticism is warranted before fully embracing the “AI savior” narrative.

Despite the positive signals, Alibaba still faces significant challenges. Geopolitical tensions, regulatory uncertainties, and intense competition remain persistent concerns. Furthermore, a potential global economic slowdown could dampen consumer spending and business investment, impacting Alibaba's core businesses.

The $125 level has proved to put up a bit of resistance in recent attempts higher, whilst $115 has provided some support to the downside. With BABA's stock expected to move somewhere around +/-6.3% off the back of earnings, today's move could threaten either side. In the early stages of post earnings trading in the pre-market, BABE is 1.35% higher at $121.20.