Morningstar

Alibaba Earnings: Quick Commerce Loss Disappoints; Long-Term Positive Outlook Maintained

We think Alibaba stock is undervalued.

The Alibaba logo and signage is displayed on a building in Xixi, Hangzhou, China.
Alibaba Group
Securities in This Article
Alibaba Group Holding Ltd ADR
(BABA)

Key Morningstar Metrics for Alibaba Group Holding

What We Thought of Alibaba Group Holding’s Earnings

Alibaba Group Holding’s BABA adjusted EBITA declined 78% sequentially in the September quarter. It guided cloud revenue year-on-year growth to be “high” instead of “accelerating” in the coming quarters, and that customer management revenue year-on-year growth will decelerate in the December quarter.

Why it matters: Adjusted EBITA missed our estimate due to higher quick commerce losses and increased investment in foundational models and artificial intelligence applications. We cut adjusted EBITA forecasts by 5%-7% during fiscal 2026-28 (ending March), but our midcycle earnings estimates are largely intact.

  • We think Alibaba’s reluctance to guide accelerated cloud revenue growth stems from supply constraints due to component shortages, quarterly fluctuations in internal AI cloud usage, and a high comparison base.
  • As Alibaba sees accelerating AI demand from customers and noted that guided capital expenditure might be too conservative, we keep our cloud revenue and higher-than-guided capex estimates largely unchanged. Its CMR guidance met our expectations.

The bottom line: We maintain our fair value estimates for wide-moat Alibaba at $258 per ADS. The shares are undervalued, as the market continues to underestimate management’s strong execution capabilities and Alibaba’s cloud business potential.

  • Alibaba delivered on its promise to halve quick commerce unit economics losses by October compared with July and August while maintaining order volume share.
  • Third-party data supports our bullish outlook in Alibaba’s AI cloud, as detailed in our report “Alibaba: China’s AI Cloud Giant.” On Hugging Face, over 180,000 derivative models had been developed based on Qwen as of Oct. 31, more than double the second-largest peer.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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