Evaluating Turnaround Progress
Alibaba, facing a 50% decline in its stock value over the past five years, is showing signs of stabilization. In its recent fiscal first quarter, revenue inched up by 4% to $33.5 billion, while adjusted earnings per ADS dropped by 5% to $2.26.
The e-commerce giant’s key segment, consisting of Taobao and Tmall, witnessed a 1% revenue decrease to $15.6 billion. Despite order and GMV growth, EBITA for this segment dipped by 1%. Alibaba is now ramping up its monetization efforts, including initiatives like Quanzhantui.
Moreover, Alibaba’s cloud intelligence group experienced a 6% revenue increase to $3.7 billion, with AI-related revenue surging by triple digits. The segment’s adjusted EBITA spiked by a remarkable 155% to $322 million.
While other segments showed mixed results, Alibaba remains optimistic about the future profitability of its international commerce retail and logistics businesses. The company anticipates these arms will yield substantial profits once they scale up.
Image source: Getty Images.
Potential for Growth
Despite modest recent financial figures, Alibaba’s progress is evident. The stabilization of Taobao and Tmall showcases potential for enhanced market share, paving the way for increased monetization. Additionally, the cloud computing division is witnessing promising revenue growth and improved profitability, shedding low-margin projects.
Alibaba’s thriving international commerce and logistics divisions are on a path to profitability once they achieve significant scale. Current valuation metrics show the stock trading at attractive levels: a forward P/E of around 8.5 times based on 2025 estimates and an enterprise value-to-EBITDA multiple of under 6 times.
Reinvigorating a company as massive as Alibaba takes time, but incremental progress is undeniable. The stock, with its current valuation and positive trajectory, presents an enticing investment opportunity.
Investment Consideration
Given Alibaba’s improving operational performance and appealing valuation, investing in the stock at its current juncture seems prudent. While surface-level metrics may not fully convey the ongoing turnaround, a closer look reveals Alibaba’s evolution and potential for sustained growth. The company’s position as a leader in AI through its cloud computing arm, coupled with the stabilized e-commerce operations, paints a promising picture for investors.
For those patient enough to witness Alibaba’s resurgence firsthand, the stock’s current affordability and the company’s gradual recovery make it an attractive buy.