We recently published an article titled 12 High Growth E-commerce Stocks To Buy.  Jefferies analyst Thomas Chong lowered the firm’s price target on Alibaba Group Holding Limited (NYSE:BABA) to $225 from $231 while maintaining a Buy rating on the shares as part of an earnings preview on January 8. Despite the modest adjustment, Jefferies reaffirmed Alibaba as a top pick for 2026, highlighting the company’s expanding opportunities in artificial intelligence and cloud computing. The analyst also noted that A ...

Core Viewpoint - Alibaba is heavily investing to drive revenue growth, particularly in its e-commerce and cloud computing segments, despite facing challenges in profitability and cash flow [1][11]. Group 1: Cloud Computing - Alibaba's cloud intelligence revenue grew by 34% to $5.6 billion, surpassing the 26% growth in fiscal Q1, with AI product revenue more than doubling [2]. - The adjusted EBITA for the cloud segment increased by 35% to $506 million, indicating strong performance driven by AI demand [2]. - The company is considering increasing its capital expenditure budget to meet growing customer demand, although supply constraints may impact its ability to enhance AI infrastructure spending [3]. Group 2: E-commerce Operations - Alibaba's e-commerce revenue rose by 16% to $18.6 billion, with quick-commerce revenue surging by 60% to $3.2 billion [5]. - The third-party business revenue increased by 10% to $11.1 billion, while direct sales rose 5% to $3.4 billion, and wholesale sales jumped 13% to $947 million [5]. - Despite the growth, investments in quick commerce led to a 76% drop in segment EBITA, with the company planning to prioritize quick commerce investments over profitability in the coming years [6]. Group 3: Financial Performance - Overall revenue for Alibaba increased by 5% to $34.8 billion, but grew by 15% when excluding dispositions [8]. - Adjusted EBITA fell 78% to $1.3 billion, and adjusted earnings per American depositary share (ADS) decreased by 71% to $0.61 [8]. - Operating cash flow dropped 68% to $1.4 billion, with free cash flow showing an outflow of $3.1 billion due to investments in quick commerce and AI infrastructure [9]. Group 4: Market Position and Valuation - Alibaba's stock has increased approximately 85% year-to-date, trading at a forward price-to-earnings (P/E) ratio of about 16 times fiscal 2026 analyst estimates [1][13]. - The company ended the first half of its fiscal year with $46.1 billion in cash and short-term investments, and $39.5 billion in debt, indicating a strong balance sheet despite current cash burn [9].

Core Insights - Alibaba reported a year-over-year revenue increase of 7% and a profit increase of 36% for the March quarter of 2025, but both figures fell short of consensus estimates [1] Segment Performance - Taobao and Tmall Group experienced a revenue growth of 9% - International Digital Commerce grew by 22% - Cloud Intelligence saw an 18% increase - Local Services reported a 10% growth - Digital Media grew by 12% - However, Cainiao Logistics experienced a decline [1]