Alibaba Stock (HKG:9988, BABA) Gains, Analysts Raise Targets on Earnings

Alibaba's stock (HKG:9988, BABA) ended the Hong Kong trading session strongly higher today, closing out at HKD137 for a 18.41% gain. The NYSE listed shares of Alibaba (BABA) will be closed for action today for labor day, yet closed out Friday's session at $135, for a gain of 12.9% following earnings. This morning's action, alongside the view from Wall St, indicates bulls may be eyeing more. 

 A note from UBS, which raised its price target on the stock, reinforcing a “Buy” rating could provide further ammo. This vote of confidence comes amidst mixed signals from the company's fiscal first-quarter earnings report, yet indicates a potential for long-term growth.

UBS's decision to increase its price target to $162 from $158 is rooted in the belief that Alibaba's strategic investments in quick commerce and artificial intelligence (AI) are beginning to yield tangible results. The company's fiscal Q1 report, while presenting a mixed bag, highlighted the synergies emerging from these investments, particularly within the cloud computing segment.

This revised target reflects a potential upside of 20% from the latest close.

Alibaba's Q1 revenue reached 247.65 billion yuan ($34.62 billion), a 2% year-over-year increase, but fell short of analyst expectations of 252.92 billion yuan. This revenue miss is attributed to heightened competition and softer consumer demand affecting Alibaba's core e-commerce operations.

Despite this, net income saw a substantial rise of 78% to 43.11 billion yuan, primarily due to gains from equity investments and the disposal of its Turkish e-commerce venture, Trendyol. Excluding these one-time gains, net income would have decreased by 18% year-over-year, underscoring the impact of ongoing investments in the intensely competitive instant commerce sector.

The cloud computing division stood out as a strong performer, with revenue surging by 26% to 33.40 billion yuan, exceeding forecasts. This growth is largely fueled by Alibaba's aggressive investments in AI, with AI-related product revenue maintaining triple-digit year-over-year growth for the eighth consecutive quarter. This performance provides a clear indication that Alibaba's strategic shift towards technological innovation is gaining traction.

Other analysts have also weighed in with bullish revisions. Jefferies came out with a raised from $150 to $165 (Buy rating), with expectations that Alibaba will capture a new phase of growth. Bernstein also raised from $145 to $160 (Outperform rating) having seen Friday's call as one “for the history books”. Food delivery losses expected to halve by October would have Q2 down as the peak investment quarter.

While short-term revenue challenges and margin pressures remain, the robust growth in cloud computing and the potential synergies from quick commerce investments suggest a positive long-term trajectory.  Analysts clearly like what they heard, and markets are following suit.Analyst Price Targets