Is Alibaba an irresistible buy or a fading giant?

In its fiscal first quarter, Alibaba reported a 4% increase in revenue, reaching $33.5 billion. Despite a 5% drop in adjusted earnings per ADS and a 2% decrease in adjusted EBITDA, the company's free cash flow remained at a healthy $2.4 billion.

BABA is hovering around $81, showing signs of a potential rebound after a prolonged downtrend. The RSI is in oversold territory, hinting at a possible bounce. However, the 50-day and 200-day moving averages are still sloping downwards, and the $100 level remains a significant resistance.

Near-Term Outlook: Traders might watch for a short-term bounce, but need to be cautious as the overall trend remains bearish. A break above $100 could change the narrative.

Long-Term View: Long-term investors need to consider the bigger picture: China's economic health, regulatory developments, and BABA's growth prospects. While there's potential for a rebound, the current environment calls for careful consideration.

While these figures might not initially appear impressive, a closer examination reveals a more nuanced picture. Alibaba's core e-commerce platforms, Taobao and Tmall, experienced a 1% dip in revenue. However, this was offset by double-digit growth in orders and high single-digit growth in gross merchandise value (GMV). The company is now strategically focusing on monetization through initiatives like its new marketing tool, Quanzhantui.

Alibaba's cloud intelligence group demonstrated promising growth, with revenue climbing 6% to $3.7 billion. This was fueled by triple-digit surges in AI-related revenue, driven by increased adoption of Alibaba's infrastructure for AI development and its proprietary large language models. The segment's adjusted EBITA also saw a remarkable 155% increase, reaching $322 million.

While the company's other segments showed mixed results, with international commerce retail revenue soaring 32% but EBITA losses widening due to investments, Alibaba remains optimistic about their future profitability. The company anticipates that most of its non-core businesses will achieve profitability within the next year or two, further contributing to overall growth.

Upside potential and valuation

Despite the seemingly lackluster headline numbers, Alibaba's turnaround is gaining momentum. The stabilization of Taobao and Tmall's market share, coupled with renewed focus on monetization, signals a positive trajectory for the company's core e-commerce business.

Furthermore, the cloud computing segment's improving profitability, driven by the phasing out of low-margin contracts, is a significant development. This, along with the continued growth of Alibaba's international commerce and logistics network, paints a promising picture for the company's future.

Investors are presented with an attractive entry point, given Alibaba's current valuation. The stock trades at a forward P/E ratio of approximately 8.5 times based on 2025 analyst estimates, and its enterprise value-to-EBITDA multiple is less than 6 times. This latter metric accounts for Alibaba's substantial $50 billion in net cash reserves.

Conclusion

Alibaba's turnaround is a complex process that requires time, but the company is making steady progress. While surface-level figures may not fully reflect this, a deeper analysis reveals a company on the path to recovery. With its strong position in the Chinese e-commerce market, growing cloud computing business, and promising ventures in AI and international commerce, Alibaba presents a compelling investment opportunity at its current valuation.