Alibaba Earnings: Higher Investment in Certain Segments Could Pressure Bottom Line

Key Morningstar Metrics for Alibaba Group Holding

• Fair Value Estimate: $100.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Alibaba Group Holding’s Earnings

We maintain Alibaba Group Holding’s BABA fair value estimate at $100 per share after the firm reported in-line September-quarter results. In our view, Alibaba is fairly valued, given the high investment needs in Taobao and Tmall Group and the overseas e-commerce businesses. We think our valuation can be driven higher if the company proves it can consistently maintain or regain market share for Taobao and Tmall while maintaining or improving margins and expediting capital return to shareholders.

Online gross merchandise volume for Taobao and Tmall achieved double-digit year-over-year growth in the September quarter, but adjusted EBITA for the segment fell 5% year on year, due to its focus on competitively priced products and investment in customer service and membership benefits. We expect rising monetization of this segment—higher customer management revenue as a percentage of GMV—will improve year-on-year adjusted EBITA growth in the second half of fiscal 2025 (ending March), thanks to the launch of the new marketing tool Quanzhantui and new GMV-based service fees.

Nonetheless, higher investment in Alibaba International Digital Commerce Group and Taobao and Tmall could pressure its bottom line in the near term. We forecast a 10-year adjusted EBITA compound annual growth rate of 3% for Alibaba.