Alibaba Earnings: More Positive Outlook Despite Mixed Results

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
(GMV)
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.

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