Alibaba’s Quarterly Results and Market Reaction
Alibaba’s results for the June quarter didn’t quite meet expectations, yet that didn’t seem to dampen investor enthusiasm, with shares rising by 13% last Friday.
In the first quarter, the Chinese tech giant reported revenues of $34.57 billion, reflecting a 2% year-over-year increase, though profits fell short by about $910 million. It’s worth noting that if we exclude specifics like Sun Art, revenue growth was closer to 10%. On another note, adjusted EPADS stood at $2.06, missing estimates by $0.10. This decline in profits from Alibaba’s core e-commerce segment stemmed largely from heavy investment in China’s burgeoning “quick commerce” market.
Conversely, Alibaba’s cloud division is seeing quicker growth. Alicloud revenues jumped by 25.8% in the first quarter, compared to 17.7% in the preceding quarter. Interestingly, for the first time, more than 20% of external cloud revenues came from AI-driven sources.
Despite the strong growth in cloud services, the overall performance this quarter seems, well, a bit mixed. Bernstein analyst Robin Zhu called the quarter “mediocre.” However, he pointed out that the stock market tends to look toward the future, suggesting the quarter may reflect deeper strategic movements that analysts are starting to grasp.
“It felt like a turning point, a shift,” Zhu remarked, addressing how companies are often not great at being immediately clear. “The future plans are becoming clearer. We’re engaging with the company’s extensive ecosystem, tapping into food delivery, quick commerce, and AI.”
Although substantial expenditures were necessary to acquire new users and riders throughout July and August, the announcement indicating that food delivery units could be halved by October is “more constructive” than Zhu had predicted. This implies Q2 could mark a peak in losses, even if it’s a significant uptick from Q1. Alibaba’s ambition to dominate China’s food delivery and quick commerce space presents a challenge, especially for Meituan, which seems to struggle to articulate its strategies in response. Recent trends indicate Alibaba has gained considerable ground in food supply and fast sharing, while maintaining moderate spending compared to Meituan.
On the AI front, management pointed out capital expenditures of RMB38.7 billion ($5.42 billion) this quarter, signaling strong demand for both AI inference and training. They hope to see revenue growth accelerating in future quarters. “Reflecting back,” Zhu shared, “at the start of the year, Alibaba’s stock upgrades arrived quickly amidst peak excitement for AI. But we believe those AI investments will enable Alibaba to achieve better capital allocation.”
In summary, Zhu reaffirmed an “outperform” or “buy” rating on BABA stocks, raising the price target from $145 to $160.
Support for Alibaba is also apparent among analysts, with a consensus rating showing 12 buys and 1 hold. The average target price stands at $152.63.
