Key Morningstar Metrics for Alibaba Group Holding
- Fair Value Estimate: $258.00
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
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.
